Canada Markets

The Jan. 11 USDA reports were viewed as bullish for wheat. Global ending stocks were cut from 176.95 million metric tonnes to 176.64 mmt. Dec 1 quarterly stocks were announced at 1.659 billion bushels, down from the average industry estimate at 1.674 bb. Winter wheat plantings were lower than expected, at 41.8 million acres, down from the average industry estimate of 42.6 million acres, although up from last year's 41.3 million acres.

While the report has cleared the air and ultimately removed uncertainty across the grain complex, recent concerns of cold and dry weather in the U.S. hard red winter wheat belt, along with concerns of cold weather affecting Russia and China, keep traders on edge. As a result of the report along with global crop concerns, market activity has picked up, while prices have now moved higher for three consecutive days and the potential for a higher close on Wednesday would result in four consecutive days of price appreciation.

From its July 23 high of $10.34 1/2/bu., March wheat reached a low of $8.30/bu. on Jan 11. Support was at the 67% retracement of the earlier May-through-July uptrend, which was at $8.39 1/4/bu. While trade since Jan. 1 tested support at $8.39 1/4, as seen on the daily chart (not shown) with the largest breach on Jan. 11 to a low of $8.30/bu., the market never closed below support at $8.39 1/4.

Since then, we've seen a move to the upside with a combination of commercial and noncommercial activity, as traders are pulled from the sidelines and forced to cover short positions because of the risk of continued upward momentum.

This move is consistent with the seasonality of the Minneapolis wheat market, which on average during the past five years has rallied 23% from the first week of January to the second week of February to reach a seasonal high for the year. Given this scenario, one of wheat's enemies is time, given that the seasonal high could be within four weeks.

Minor resistance may be seen at the March contract's 50-week moving average at $8.74 1/4/bu, which was tested with today's $8.73 high before selling pressure took over.

Additional resistance may also be seen at the contract's 38.2% retracement level of the most recent downtrend, which started at the July high and ended with the Jan. 11 low. This resistance level is at $9.08/bu and while not shown, the daily chart indicates several failed tests of this level between Dec. 13 and Dec 19. Should this level be breached, the next upside target would be the $9.32 1/4 level, which represents the 50% retracement of the latest downtrend.

Forward spreads for the MGEX wheat market are inconclusive, with the Mar/May losing strength during this week, while the May/July future is strengthening during this week. U.S. exports remain disappointing, as shown by the weak National Average Spring Wheat Basis, which continues to track the weakest basis seen during the past five years in the U.S.

Cliff Jamieson can be reached at cliff.jamieson@telventdtn.com

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