Canada Markets

Potential Upside Targets for Spring Wheat Futures

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The upside target on the weekly continuous active spring wheat chart is $6.91 1/4/bu, the 33% retracement of the move from the June 2011 high to the August 2016 low. Concerns surrounding protein supplies are growing, with the continuous active HRS/HRW spread at $1.85/bu, its highest level reached since late 2011 (middle study). The lower study shows the noncommercial net-futures position in HRS growing for three-straight weeks. (DTN graphic by Nick Scalise)

With the September spring wheat contract reaching yet another contract high on Tuesday of $6.62/bushel while closing just slightly lower at $6.59 1/4/bu, we turn to the longer-term weekly continuous active chart for indications of where chart resistance lies should the uptrend continue.

The weekly continuous chart shows a weekly high of $6.80 1/4/bu reached in mid-December 2014 as the nearest level of resistance. The next level is found at the parallel blue line, which marks the 33% retracement of the move from the June 2011 high of $11.20/bushel to the August 2016 low of $4.80 1/4/bu.

Despite the declining crop condition ratings seen in the northern spring wheat growing states, a combination of both U.S. and global wheat stocks may make it difficult to envision the potential that this market may have. The middle study shows the continuous active HRS/HRW spread which remains in a solid uptrend, finishing at $1.85/bu (HRS over HRW), the widest spread since November 2011. This can be viewed as a proxy for the overall demand for protein, which is buoyed given the dryness in the spring wheat growing areas along with the low proteins seen in the hard red winter harvest to date.

The lower study shows investors climbing on board, having increased their bullish net-long holdings in HRS for three consecutive weeks to 7,213 contracts as of July 12. While this group is showing an increasingly bullish sentiment, this net-long position remains far from the 2017 high of 14,045 contracts reached in January, as well as the net-long futures positon reached of 19,799 contracts in May 2014.

Another interesting point is seen in DTN's National Average Spring Wheat Basis, which is calculated as the difference between the daily National Spring Wheat Index of U.S. prices and the nearby MGEX close. This basis was reported at 41 cents under the July following Monday's close, which is 5 cents wider or weaker than the five-year average of 36 cents. Commercial traders are bullish, with both the Sept/Dec and Dec/March spreads in inverted territory (each future trading higher than the one that follows), which is also indicated by the downward sloping forward curve, which is simply a line that connects with each successive futures value over time.

The market could be viewed as a Type 1 Market given the nine identified market types, with bullish commercial and noncommercial trade signaling a long cash grain strategy. The actions of commercial and noncommercial traders could hold the key to this market.

DTN 360 Poll

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