The move made by December MGEX spring wheat futures on Monday, which closed 6 1/4 cents higher at $6.31 per bushel, resulted in a breakout from a range that has governed trade over the past five weeks. This is the highest level achieved since the weekly low of $6.06/bu. was reached Oct. 2, or the first day of trade for the month of October.
Monday's move also resulted in a positive close above the contract's 50-day moving average at $6.27 1/4/bu., for the first time since Aug. 10.
According to DTN's Five-Year Seasonal index chart, this is not a typical period of seasonal strength, with prices normally tending to move sideways into mid-December. DTN's Price Probability chart points to last week's close of $6.26 1/2/bu. already in the upper 37% of the five-year range traded for this particular week.
Today's move saw supportive commercial activity, with the nearby December/March futures spread narrowing 3/4 cents to minus 13 cents, as seen in the third study on the attached chart, signaling a neutral view of market fundamentals held by commercial traders after this spread traded as weak as 14 1/4 cents as of mid-October.
At the same time, recent CFTC data points to a growing bullishness among noncommercial traders or investors in spring wheat futures. Friday's CFTC data shows this group boosting its net-long futures position for the first time in three weeks, as of Oct. 31, and to the highest level seen in three weeks at 3,674 contracts (fourth study). This was seen in the same week that investors in soft red winter increased their bearish net-short position by 38,340 contracts, or 116.5%, the most bearish position seen since June while noncommercial traders in HRW flipped from a net-long position to a net-short position for the first time since April.
Chart resistance is seen at a series of daily highs in the $6.50 to $6.52/bu. range as seen in September, while the 23.6% retracement of the move from the July high to October low lies at $6.60 3/4/bu., which suggests a further retracement may be possible prior to facing significant resistance. The one concern is the stochastic momentum indicators (second study) which are close to entering overbought territory and could slow investor buying interest and even lead to a sudden change in direction. The bearishness seen in the winter wheat markets could also act as a drag on spring wheat.
The lower study points to a strengthening of the HRS/HRW spread (continuous active contracts) which acts as a proxy for the demand for protein as the higher-protein HRS gains in value relative to the lower-protein HRW. After reaching a recent low of $1.70 1/2/bu. USD (HRS over HRW) in early October, this spread has strengthened to $2.01/bu. in Monday's trade while is approaching chart resistance at $2.07.46/bu., the 33% retracement of the move from the August high to October low. This is the strongest spread seen in close to a month.
DTN 360 Poll
What do you think that Statistics Canada will report with respect to the overall size of the Canadian crop in its final estimates released in December? You can weigh in with your thoughts on this week's poll that is found at the lower right of the Canadian Home Page.
Cliff Jamieson can be reached at email@example.com
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