Likewise, the wheat “trading band” has been widened this week for the first time in eight years. In response to upward pressure on wheat prices over the past year, U.S. commodity exchanges are allowing the wheat price to move a maximum 60 cents up or down each day, instead of 30 cents.
On cue, wheat soared nearly 60 cents in Chicago, to a new record high of $11.53. The price retreated quickly, back to $10.48 — 45 cents below its opening price. Swings like this are likely to continue for some time.
“When you get a rally like we have seen in wheat,” explains Kevin Kerr, “the exchanges (and government) get nervous. So they take action. In this case, the limits on the wheat market were raised considerably, and in essence, that will raise margin requirements too, and force many individuals to liquidate. We are not seeing wheat back off too much yet, but it will almost certainly have an impact.
“This has been an incredible rally for the grains, but now is not the time to be overly bold. Now is the time to use caution. Changes like this can send a chill through the market and make traders nervous. This is one of those times to be defensive and secure profits until things get sorted out.”