Canada Markets

New crop December wheat had a positive finish this week, despite some of the negative news dumped on the market. In total, the December future gained 9 1/2 cents over the week. Short-term trendline resistance, which began with the April 30 high of $8.44 1/2, was breached in today's trade after three attempts in the previous five trading sessions.

This move alone does not ensure a move towards an uptrend and may very well be little more than a selling opportunity, but it is an interesting move just the same.

Today, the International Grains Council (IGC) increased their forecasts for the global wheat crop to 682 million metric tonnes. This is 4% higher than last year's production and 2 mmt higher than their estimate from last month. The IGC report stated, "Although there is continued uncertainty about poor harvests in some major producers, global wheat availabilities are still set to be ample over the year ahead." Ending stocks of wheat are forecast to grow by 2 mmt from last year to 180 mmt.

It seems unlikely at this time that the wheat market will feel the pull higher from corn as well, with the IGC also increasing global corn production by 10% from last year to 945 mmt, and a full 6 mmt higher than last month's forecast. Global ending stocks of corn are forecast to grow by 27 mmt to 149 mmt.

In their May WASDE report, the USDA forecast global wheat production even higher at 701.1 mmt, with a 2013/14 carryout forecast at 186.38 mmt. As well, the USDA also forecast the corn crop higher, with global production at 965.94 mmt leading to a 154.63 mmt global carryout.

Last summer's rally is perhaps a perfect example of how quickly things change. At the same time, it may once again require a major crop to be jeopardized before prices can mount a rally to higher levels. One reason to question this market's potential is the neutral outlook as seen in forward spreads. Both the Sept/Dec spread and the Dec/Mar spread have been flat or neutral for a period of months, an indication that the market's view of wheat fundamentals provides no reason for concern, at present.

In the meantime, we will watch for the following signals:

-- the ability of the market to maintain gains over resistance

-- a potential test of the resistance of the 100-day moving average at $8.28/bu.

-- a potential test of the 33% retracement of the November high of $9.59 1/2 to the April low of $7.74/bu., at $8.35 1/4/bu.

-- the ability of the weekly stochastics to maintain their upward momentum

Should this market break down, new-crop sales or downside protection could be considered.

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

(AG)

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