Canada Markets

Last week we looked at the March Minneapolis wheat future as it flirted with its support level which had been in place since mid-August. Tuesday's bearish USDA report was the straw needed to break the camel's back, with futures breaching this support with a 16-cent move lower, while losses were extended on Wednesday, with a 7-cent decline, then again Thursday, with a 2-cent decline, one hour before the close.

With wheat exports from the United States lagging, analysts had estimated a decline in wheat exports of 16 million bushels (435,445 million metric tonnes), leaving ending stocks at 720 mb, above November's ending stocks of 704 mb. The actual reduction in exports was 50 mb (1.4 mmt) leaving December's forecast for wheat ending stocks at 754 mb, much higher than estimated by the trade or as found in the November report.

Wheat export reductions by wheat class show a reduction in hard red winter wheat exports of 45 mb, with soft red winter forecast to fall 10 mb and soft white wheat exports forecast to rise by 10 mb. Hard red spring wheat exports are forecast to fall by 5 mb, or 136,077 mt, while durum exports are left unchanged at 25 mb, or 680,383 mt.

The wheat market has not taken kindly to this forecast. Previous price support on the Minneapolis March weekly chart was layered with previous weekly lows between $9.16 1/2/bu. and weekly lows at $9.20/bu. The $9.20/bu. support was first tested the week of Aug. 13. This region of support failed to hold after Tuesday's report.

While upcoming CFTC data will show non-commercial long-liquidation as a result of this report, futures spreads are also weakening, with the nearby Mar/May spread weakening (increasing its carry) by 2 3/4 cents this week. This is an important indicator of the weak fundamental outlook as viewed by commercial users.

Current trade is 32 cents lower for the week at $9.02/bu., and is very close to testing the $9/bu. level which may provide psychological support. Futures continue to trade at the bottom of the weekly range. Further support may be found at the contract's 50% retracement of the original uptrend, found at $8.88 3/4/bu., should the market continue under pressure. Weekly stochastic momentum indicators are currently in over-sold territory and show no sign of turning higher.

Also of concern is the fact that corn futures are also currently in the process of testing technical support. Approximately one hour prior to the close on Thursday, corn futures have traded through the support of its 38.2% retracement of the original uptrend at $7.18/bu, while currently sitting at $7.17/ bu. The November monthly-low is $7.14 1/4 and may provide the next level of support. A breach of this level will be a negative move for corn and a further selling of corn and wheat futures may occur.

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

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