Canada Markets

Spring Wheat Futures Diverge From Winter Wheat

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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Spring wheat finished lower for the sixth continuous session on Tuesday, nearing a test of key support levels. Trade ended barely above the 61.8% retracement of the move from the August 2016 low to July high calculated at $6.28 1/2/bu., as seen on the continuous active chart. Noncommercial traders continue to liquidate despite prices in over-sold territory (second study). The lower study continues to signal a potential longer-term bullish scenario, with the March/May spread holding at a modest inverse. (DTN graphic by Nick Scalise)

Chicago soft red winter wheat and Kansas City hard red winter wheat both posted weekly gains last week for the first time in eight weeks, while extending those gains further in Tuesday's trade. The most active SRW contract reached its highest level in 12 sessions on Tuesday, although both SRW and HRW faltered at their respective 20-day moving averages this session.

The continuous active spring wheat chart shows price testing and eventually holding above the 61.8% retracement of the move from the Aug. 31 2016 low of $4.80 1/4/bu. and the July 5 high at $8.68 1/2/bu, which is calculated at $6.28 1/2/bu, while suffering its sixth consecutive losing session. A sustained move below this level could result in a further slide to the 67% retracement level at $6.08 1/4/bu, while not shown, the December contract's 200-day moving average is calculated at $6.07 that could further deter a move lower.

While DTN's seasonal index studies point to typical price weakness into late September, prices are already oversold as seen in the stochastic momentum indicators on the middle study, which could soon act to slow noncommercial liquidation. This group was reported to hold a net-long futures position of 6,233 contracts as of Aug. 29, which remains higher than the previous four-week average.

The lower study shows the Dec/March spread (brown line) ending at a bearish 11 cents (March trading above the December), signaling a bearish sentiment among commercial traders which may not bode well for prices in the short term. At the same time, the March/May spread (blue line) traded at even money this session although ended at a modest inverse of 1 1/4 cents (May trading over the March) while perhaps pointing to a more bullish scenario longer term.

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