Thursday's look at spring wheat technical signals in the Canada Markets Blog showed the March spring wheat contract stalling at various levels of resistance during recent weeks. Friday's finish saw the March future end 6 1/4 cents higher, at $5.44 1/4 per bushel, finishing above retracement resistance at $5.42 1/4 cents for the first time while also trading above the November high of $5.45/bu. to extend the uptrend on the weekly and monthly charts.
This week's news was perhaps the move of the March contract to an inverse over the May with Friday's March close at a 3 1/2-cent/bu. over the May, despite the bearishness of the global wheat market. This is a signal of bullish commercial activity, showing a need for grain to be delivered sooner than later. As of Dec. 13 CFTC data, noncommercial traders are shown to have reduced their net-long futures position by 512 contracts to 7,352 contracts, after the previous week's position was the largest bullish net-long position held since October 2014.
The question remains whether it makes sense to store spring wheat. The attached graphic shows the average prairie CWRS basis, based on accessible internet bids, for the six-month December through May periods. The December through March delivery months are calculated against the March future with basis levels reflecting a weak carry or return for storage, ranging from 86 cents over for December to 93 cents over for March. The 7 cents/bu., or $2.57/metric ton, spread between December and March delivery is not enough to cover carrying costs and is sending a signal that the grain is wanted sooner, rather than later.
While the April/May delivery periods do show a stronger basis level against the May future, the March/May inversion (March closing over the May) of 3 1/2 cents also acts as a disincentive to store into this period.
Despite the futures market close above resistance, concerns exist. First, this is a counter-seasonal move for spring wheat futures, which tend to drift lower through late-February as shown on DTN's five-year seasonal index. As well, investors are shown to hold a significant net-long position, as of Dec. 13. Should this group have a change of heart, the uptrend in futures could end abruptly.
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Cliff Jamieson can be reached at firstname.lastname@example.org
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