Canada Markets

The hard red winter market continues to be the driving force in the wheat market, with feedback from the HRW wheat tour in Kansas and Nebraska today indicating the challenges faced by this crop. Reports early today suggested an average yield of 38.2 bushels per acre in the region of northern Kansas and southern Nebraska covered today, as compared to the average of 43.8 bpa estimated for the region this time last year. HRW wheat for July delivery rose 16 cents/bushel today as compared to the move of 7 3/4 cents for spring wheat.

The move in HRW wheat resulted in a close above the trading range generated over the past six weeks, which happens to be the March high of $7.94 1/2/bu. The July HRS wheat contract also reached a daily high which exceeded its March high of $7.63/bu., although failed to close above this level, ending the session at $7.61 1/4/bu. Given a weekly close above this resistance, technical analysis theory would suggest a further move higher which would match the range traded from the March high of $7.63/bu. to the April low of $7.06 1/2. This could result in a potential upside target of $8.19 1/2/bu., shown on the attached chart by the arrow pointing to the upper horizontal blue line.

This theory could be quickly derailed given the middle study, which shows that weekly stochastic momentum indicators are trending higher, although are above 80% indicating an over-bought situation. The daily chart would also indicate the same situation given the shorter-term trend. This would suggest that prices are subject to sudden price moves due to non-commercial or investor selling, who may tend to get nervous should a weather system bring moisture to southern winter wheat areas experiencing drought conditions, even though the damage may be largely done in some cases with little chance for improvement.

The lower study indicates the spread between the July HRS and the HRW wheat prices. The spread closed at a minus 41.25 cents in today's trade, an indication of HRW's increasing price premium over HRS. This is a low for this spread over the life of the July contract. If one considers the long-term continuous monthly spread chart (not shown), today's spread of 50 cents (May futures) is by far the widest this spread has been in monthly data going back to April 1980. While the HRW may be poised to move higher given its bullish fundamentals, the current weakening of the spread suggests that spring wheat will only partially benefit from the move higher in HRW.

Spring wheat planting progress as of April 27 was reported to be 18% planted, down from the five-year average of 30%. The Northern States of Minnesota and North Dakota are seeing the greatest delays, with 2% of Minnesota's planting complete compared to the five-year average of 39%, while 3% of North Dakota's acres have been planted, as compared to the five-year average of 19%.

While the northern States and Canadian prairies continue to see cool and wet weather in many regions, as opposed to the drought conditions seen in the southern States, suggestions are made that the only challenged crop in the world now is seen in the HRW wheat growing area in the Southern Plains, which may temper any upside potential in this market. The one wild card would be the possibility of trade sanctions against Russia that would tighten global export supplies, should the situation advance to that stage.

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

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