Canada Markets
European Milling Wheat Rallies
The European Union increased its estimate for 2019-20 wheat production (excluding durum) to 143.8 million metric tons this month, up from 141.3 mmt last month, a level 11.8% or 15.2 mmt higher than realized in 2018. Businessrecorder.com reports this as a combination of seeded area estimates reported by member countries while combined with yield estimates from the Monitoring Agriculture with Remote Sensing (MARS) satellite technology.
Despite a larger crop in Europe, along with bearish global data reported by USDA this month, European milling wheat is on the move higher with a focus on the North American situation.
September Paris milling wheat gapped higher in Monday's trade while the United States markets were closed for the Memorial Day holiday, a move that set the tone for this week's trade. A second bullish gap was formed in Tuesday's trade, while Tuesday's close was higher for the ninth time in ll sessions, up EUR2.75 to EUR184.75.
P[L1] D[0x0] M[300x250] OOP[F] ADUNIT[] T[]
Of the major wheat contracts, this Paris milling wheat contract was the first to finish above the resistance of its 200-day moving average, although the U.S. soft red winter contract is nearing this resistance. As well, the European contract also closed above the 50% retracement of the move from its August 2018 high of EUR200.25 to the May 2019 low of EUR167.
The blue line on the attached chart represents the September/December futures spread which has narrowed from minus EUR4.25 in late April to minus EUR3.25 this week, a sign of supportive commercial activity, with likely support from noncommercial short-covering as uncertainty grows over global production potential.
The red line on the lower study points to the continuous active soft red winter wheat/Paris milling wheat spread, calculated at $21.50/mt USD at the time this chart was created, (European milling wheat over SRW). This is the narrowest this spread has been in almost exactly one year, which could be a bearish factor for North American exporters as they compete with the increasing supplies available to European exporters.
The next chart resistance lies at EUR187.55/mt, the 61.8% retracement of the discussed downtrend.
Cliff Jamieson can be reached at cliff.jamieson@dtn.com
Follow him on Twitter @CliffJamieson
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