Canada Markets

The new-crop December hard red spring contract faced its largest one-week move in the life of this contract this week, with a 55-cent move to the downside.

On May 6, the December contract made a sharp move higher only to fall 1 cent short of testing the contract's high of $8.30/bu. This failed attempt at the high resulted in sideways trade over the balance of last week, which ended with Friday's monthly USDA supply and demand report.

The May 9 report presented a first look at 2014/15 crop estimates, with current early estimates calling for an 890,000 metric tonne increase in global ending stocks, or a .5% increase. These are nothing but early estimates, but did send the signal to the markets that global production would once again allow for demand to be satisfied while ending stocks would increase. The stocks/use ratio at the end of the 2014/15 crop year is pegged at 26.9% and provides little reason for concern at the present time.

The market posted a bearish outside day on the daily chart (not shown) on the day of the report, a situation where the trading range engulfs the trading range of the previous day, with the close at the bottom of the day's trading range. As noted on the attached weekly chart, this week's trade resulted in a sharp move lower which saw trade move through the 33% retracement support level at $7.61 1/2/bu., while also breaching the uptrend line which was drawn off of the January low of $6.25/bu.

Nearby chart support may be found at the 38.2% retracement level at $7.51/bu., while failure to hold at this level could see a further move lower to the 50% retracement of $7.27/bu.

The middle study shows a bearish cross-over of stochastic momentum indicators while in over-bought territory above 80%. The third study indicates a largely sideways move in the weekly Dec/March spread, now holding at a carry of minus 6 3/4 cents (March above the December). This spread is the result of commercial activity out in forward positions and indicates a bearish sentiment among this group, a sentiment which has remained steady for months, which indicates current pressure coming from the non-commercial or investor side.

In addition the forecast for growing global stocks, North American markets have the comfort of a significant Canadian carry-over into the new crop year, currently estimated by Ag Canada to be 9.3 mmt of wheat excluding durum. Private economics firm Informa also released its May projections on Thursday, which included an estimate of 12.059 million acres of spring wheat, which is 50,000 acres higher than the USDA's March estimate while 463,000 acres above the current estimate for 2013.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

(ES)

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