Canada Markets

Commercials, Noncommercials Trade Wheat Rumors

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The December HRW contract led all the grains on Wednesday, forming a bullish outside-day reversal bar, while ending back above the contract's 200-day moving average. The blue bars in the histogram of the second study shows investors continuing to hold a net-long futures position as of the latest CFTC data, while the lower study points to a narrowing of the Dec/March spread, a sign of supportive commercial activity. (DTN ProphetX chart)

Global wheat markets once again showed concern over the availability of exportable supplies in the year ahead, as rumors swirled Wednesday that the Russian government would find some means to curb or tax that country's exports in order to protect domestic markets. December K.C. wheat gained 21 1/2 cents or 4% to lead the move in the U.S., while Paris milling wheat for December delivery gained five euros or 2.5%.

As seen on the accompanying graphic, Wednesday's move formed a bullish reversal signal on the December HRW chart, with the session's range engulfing the range traded on Tuesday while closing higher. Just days ago, it was noted in DTN analysis that investors were caught holding a bullish net-long position in HRW wheat, as seen in the blue bars of the histogram in the second study, having increased this position in each of the past five weeks, while today they may be feeling on the smug side.

Wednesday's rally was also a result of supportive commercial buying activity, as seen in the lower study, with the December/March spread narrowing to minus 22 1/4 cents, a less-bearish approach to trade as seen in the actions of the commercial trade. This remains a weak spread or large carry; over the past five years, this spread has traded at an average of 13.05 cents on this date.

This move comes at a time when wheat's seasonal tendency is for a move lower into the month of December. Looking back, this contract has increased over the month of September in four of the past five years, although due to a large monthly loss in 2014, the five-year average would suggest this December price falls an average of .3% in September.

Time will tell if this move has any legs, a move above the four-day high may be needed to signal a move into a short-term uptrend, currently shown at $5.55 1/2/bu.

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