Canada Markets

Spring Wheat's Bearish Technical Signals

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The weekly December MGEX spring wheat future closed lower this week for the fourth time in five weeks, while breaking below the 50% retracement of the move from the April low to July high at $6.93 1/2/bu. This week's trading range engulfed the previous week's range to from a bearish outside week trading bar. Weekly stochastic indicators are trending lower as investors liquidate long positions (second study), while the lower-study shows commercial traders growing increasingly bearish on the front-end, with the Sept/Dec spread (red line) weakening to 14 1/4 cents. (DTN graphic by Nick Scalise)

The bloom may be off the rose in the spring wheat market following Thursday's USDA report, which reduced the potential for the U.S. spring wheat crop, but not to the level expected in pre-report estimates. The December contract made a move below support at $7.28 3/4, given a 30-cent move lower on Thursday and the selling failed to let up on Friday with a close that was a 27 1/4-cent move lower to $6.88 1/4 cents.

Friday's close ended below support, which marks the 50% retracement of the move from the contract's April 11 low of $5.44/bushel to the July high of $8.43/bu., calculated at $6.93 1/2/bu. While not shown, it is interesting to note that the continuous active chart mirrors the December chart, with the 50% retracement of the move from the April low to July high calculated at $6.94/bu. A sustained move below these support levels could suggest a further move to the 61.8% retracement level at $6.58 1/2/bu. on the December chart and $6.53/bu. on the continuous active chart. This week's move was tied to the heaviest weekly volume seen over the life of the contract as seen in the third study of the chart, a sign that this market is not lacking selling interest at present.

While not shown, Friday's CFTC data shows investors paring their net-long futures position to 5,308 contracts as of Aug. 8, the lowest level reported in 10 weeks. The lower-study on the attached chart shows the nearby Sept/Dec spread weakening this week (red line), a sign of front-end bearish commercial activity. Later in the crop year, the Dec/March closed at a modest carry of 2 cents, while the March/May finished at a 9 1/2-cent inverse (March trading over the May). While both spreads weakened this week, both continue to reflect a longer-term bullish outlook.

It is interesting to note that following the August USDA WASDE report over the past 10 years, the December spring wheat contract rallied the day of the report in five years and closed lower in five years. Of the years that saw a lower close on the day of the report, the average move lower was close to 10 3/4 cents, with the largest move seen in 2012 of 22 1/2 cents lower which compares to the 30-cent move seen for the December contract following this week's report. It is also interesting to note that following the move in 2012, prices recovered just two days later only to trend higher into mid-September.


DTN 360 Poll

This week's poll asks if you think that spring wheat futures will test the highs reached in early July. You can weigh in with your thoughts on this week's poll, located on the lower right side of your DTN Canada Home Page.

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