New-crop spring wheat trade has failed to keep pace with winter wheat this week, as rains in the U.S. continue to add delays to the early winter wheat harvest while leading to increased concern over crop quality. The upward trajectory of the more bullish corn market may also be a supportive feature, with reports that wheat could be pushed into feed rations, with December corn reaching a fresh contract high this session.
At the same time, the Canadian Prairies show the most promise this spring with weather models pointing to potential widespread coverage of badly needed rain during the next week. This system is also seen dipping south into the northern states. This could help alleviate the growing dry area seen in northern North Dakota in this week's U.S. Drought Monitor, with 37.6% of the state facing a D0 (Abnormally Dry) to D1 (Moderate Drought) situation.
Over the course of the week, the most active soft red winter wheat contract for July delivery has closed higher for four consecutive days, while adding 31 cents so far this week. Hard red winter wheat has also closed higher over four consecutive days, while adding 19 1/4 cents over this period. New-crop spring wheat (December), on the other hand, posted a modest 3/4 cent gain on Thursday, while is down 2 1/4 cents over the four days of this week.
As seen on the attached chart, the December contract seems to have met its match at the contract's 200-day moving average at $5.92 1/2/bushel, while holding below psychological resistance at $6/bu. The horizontal red line represents the 38.2% retracement of the move from the contract's high to contract's low, which is reported at $5.84 1/4 per bushel. Thursday's close at $5.84 3/4 per bu. resulted in a close barely above this level.
The first study on the chart represents the new-crop December/March futures spread, which narrowed modestly this session to minus 11 1/2 cents. Light commercial buying provided support this session, although over the first four days of this week, this spread has shown weakness for the first time in four weeks as commercial activity points to a growing bearish view of fundamentals.
The lower-study points to the new-crop December hard red spring wheat/December hard red winter wheat spread, used by DTN as a proxy for the demand for higher quality spring wheat relative to the lower-protein HRW. This spread has weakened for four consecutive days to 83 cents USD (HRS over the HRW contract), while has weakened 2 3/4 cents so far this week, potentially on the way to its fourth weekly loss in five weeks as concerns ease.
Weather remains key as traders continue to juggle the challenging weather conditions faced in the U.S. with the increasingly bearish global data reported by the USDA this week, with global ending stocks of wheat forecast at a fresh record of 294.35 million metric tons, representing a bearish 38.6% of global use.
A breach of resistance at the retracement line at $5.84 1/2 per bu. and a breach of the 200-day at $5.92 1/4 per bu. could lead to a test of psychological resistance at $6.00, as well as the 50% retracement line at $6.01 1/4 per bu. This in turn could clear a path for a further move to $6.18/bu.
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