Canada Markets

The price action across the three wheat exchanges over the past two days indicates the nervousness of the market, given Russia's move into Ukraine and the possibility of supply interruptions from this region of the world. As noted in yesterday's blog, Russia and Ukraine combined are forecast to export 26.5 million metric tonnes of wheat this crop year, which amounts to 16.6% of the projected 159.39 mmt global trade.

May wheat closed far short of its session high in yesterday's trade, ending 16 1/4 cents higher. During today's session, prices failed to move above yesterday's high of $6.90 3/4, although did post a solid gain of 13 cents while closing near the high of day. Today's move saw a close above the 100-day moving average (downward sloping pink line on the chart) for the first time since Oct. 23, while the current test for price is at the 50% retracement of the move from the October high of $7.80/bu. to the January low of $5.94 1/2/bu., which is found at $5.87 1/4/bu.

While not shown on this chart, non-commercial wheat traders are bullish, with the net-long position held increasing over four consecutive weeks, where a total of 4,386 contracts were added to reach 10,741 contracts. This is the largest net-long position held in the red spring wheat market since April 2012.

The lower study on the attached chart indicates the Mar/May spread (black line) falling from its wild roller coaster ride as the March open interest moves towards zero. The May/July spread (blue line) indicates a slightly bullish inverted market, with trade at plus 1 3/4 cents (May trading above the July). Cash basis in the U.S. has weakened in recent trade, with Monday's DTN National Average Basis reported at 2 cents over the May, down 7 cents from Friday's cash trade, calculated by deducting DTN's National Spring Wheat index from the appropriate future.

The middle study indicates that momentum indicators are largely moving sideways and lacking momentum in any given direction. Given the over-bought nature of these indicators (above 80%), this market remains vulnerable to a sudden sell-off by non-commercial traders given the large position they are holding.

The prospects for this market will be largely determined by the day-to-day news surrounding issues in the Ukraine/Russian conflict. Should prices move above the 50% retracement at $6.87 1/4/bu., the next move could see a retracement to the $7.09 /bu. level which is the 61.8% retracement of the downtrend discussed.

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

(ES)

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