Canada Markets

Commercial-Noncommercial Divergence of Opinion a Risk for HRS

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The continuous active spring wheat chart points to this week's low nearing a key test of support at retracement support at $6.08 1/4 per bushel and an October weekly low of $6.06/bu. The lower study points to weakening futures spreads, a sign of growing commercial bearishness, while the histogram in the second study points to a growing bullish position held by investors. (DTN graphic by Nick Scalise)

Spring wheat futures for March delivery extended their move lower while breaking support in Tuesday's trade, the third consecutive loss for the contract, which has led to a total loss of 19 1/4 cents over three days while reaching a five-month low. Tuesday's move took out the Oct. 2 low of $6.20/mt, while leaving a big hole in the way of potential support between Tuesday's close and the $5.55/bu low reached on April 10 and the $5.52 contract low reached in September 2016 on the March chart.

The accompanying continuous active weekly chart may provide a more favourable view of potential support. Potential support may be found at $6.08 1/4/bu, the 67% retracement of the move from the August 2016 low to the July 2017 high. Further support may also be found at the Oct. 2 weekly low of $6.06/bu reached on the December contract. Either way, Tuesday's $6.15/bu low is nearing a test of these levels.

The lower study highlights the weakening spreads, a sign of growing commercial bearishness, with the Dec/March spread weakening to minus 18 1/2 cents (blue line) while the March/May spread weakened to minus 6 1/4 cents (green line) Tuesday.

The blue bars of the histogram in the first study points to a growing concern for this market. CFTC data as of Nov. 20 and released on Monday points to noncommercial traders, or investors, increasing their bullish net-long position in spring wheat for the fourth consecutive week to 8,983 contracts, the largest net-long held since July when spring wheat acres were faced with drought. At this time, a net-long of 10,768 contracts was held.

The risk is that should this group turn bearish and liquidate, as they possibly already are, further downside could lie ahead. This would suggest both sides of the trade view the market as bearish, which could suggest the need for further cash sales to protect downside risk.


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