Canada Markets

Bearish Investor Sentiment Weighs on Dec HRS

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The December daily spring wheat chart shows losses totaling 20 1/4 cents over the first two days this week, filling a gap formed in July 5 while heading for a potential test of the contract low of $5.43 per bushel. The red histogram bars on the first study show noncommercial traders holding the largest net-short position seen in over 13 years. The second study shows the Sept/Dec (blue line) and Dec/March (green line) spreads weakening this week, a sign of commercial selling. (DTN ProphetX chart)

Over the past 11 sessions, the December spring wheat contract has traded between a June 25 high of $5.77 per bushel and a July 2 low of $5.43/bu. Prices came close to testing the higher end of this range on June 29 and again on July 6, but failed to break out higher.

Price has lost ground in both the Monday and Tuesday session this week with a loss of 20 1/4 cents over the two sessions, while Tuesday's move broke below the support of the lower end of a gap created in July 5 trade, with the July low of $5.43/bu the next critical level of support to be tested.

The red bars of the histogram seen on the first study of the attached chart show investors, or noncommercial traders, increasing their bearish net-short position for the second straight week to 8,120 contracts as of July 2. Looking back in time, this position is the largest weekly net-short position seen in spring wheat trade since February 2005, or more than 13 years.

The middle study points to a bearish response on the part of commercial traders this week, with both the Sept/Dec and Dec/March spreads weakening this week, a sign of commercial selling. This could be a change in direction for this group with CFTC data showing commercial traders increasing their bullish net-long position in spring wheat futures over the past three weeks (not shown), that bears watching.

Recent data will not change this group's bearish sentiment. USDA's spring wheat condition rating as of July 8 is estimated at 80% good to excellent, up 3 points from the previous week, while more than double the 35% rating released for the same week in 2017. This is the highest rating seen since 2010. On July 6, 2010, the spring wheat crop was rated at 83% good to excellent, while USDA estimated the final hard red spring wheat yield that year at 45.1 bushels per acre, 19.3% higher than the previous five-year average. At the same time, recent DTN blogs have pointed to a lack of correlation between early July condition ratings and final yield.

Tuesday's DTN Market Weather Factors were also viewed as bearish for wheat, with showers/thunderstorms expected on both sides of the Canada/U.S. border over the next week that will further aid crop development in many areas.

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