A pattern of cold weather stretching down into the southern U.S. States has led to gains in winter wheat futures to start 2018 trade. Both old crop and new-crop soft red winter and hard red winter wheat futures formed a bullish gap to begin Tuesday's abbreviated session, extending uptrends on the daily and weekly charts while breaking through downtrend resistance lines which have been in place since late September.
Spring wheat, on the other hand, saw gains pared this session, with the March contract finishing 3 1/4 cents higher but near the lower-end of Tuesday's trading range after coming within one cent of testing last week's high. The lower study on the attached chart shows signs of supportive commercial activity, given the strengthening seen in the March/May futures spread this session to minus 7 1/2 cents that is testing resistance on the spread chart, a sign that noncommercial selling is limiting potential gains. This is also seen in the most recent CFTC data (not shown) which indicates the bullish net-long futures position held by investors or speculators has fallen in four of the past five weeks.
One concern that has perhaps been minimized is the chance of winter wheat prices acting to pull spring wheat lower. For example, DTN's Price Probability Chart shows last week's Chicago soft red winter nearby contract ending in the lower 14% of its five-year price distribution range, while spring wheat ended in the upper 41% of its five-year price distribution range.
As seen on the attached chart, a move above last week's high of $6.23 would send a positive signal, while $6.25/bushel represents the 33% retracement of the move from the contract's November high to December low. A breach of this area would signal a potential move to $6.28 1/4/bu., the 38.2% retracement of the same downtrend while the contract's 50-day moving average is at $6.28 3/4 which could lead to a further challenge.
It is also interesting to note that the March milling wheat contract on the Euronext market closed lower on Tuesday while reaching a fresh low in the contract's downtrend. The continuous chart points to European milling wheat nearing a test of the lowest level traded in 20 months. This is partially linked to the strengthening Euro trade, which is making European supplies less competitive with Russian exports.
One factor that may be worth watching is a strengthening in PNW basis levels seen on Tuesday, the first change reported since early December. The range of basis reported for railcars of Dark Northern Spring delivered Portland was seen down $.05 to up $.10/bu. across all protein levels on Tuesday.
Cliff Jamieson can be reached at firstname.lastname@example.org
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