Canada Markets

European Milling Wheat Rallies

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The September Paris milling wheat contract gapped higher for a second day on Tuesday, closing above its 200-day moving average while also ending above the 50% retracement of the move from its August 2018 contract high to May 2019 contract low. The blue line on the second study shows signs of bullish commercial activity as the September/December spread narrows to EUR3.25. The lower study shows the Chicago SRW/Paris Milling wheat spread close to its narrowest level in more than a year. (DTN ProphetX chart)

The European Union increased its estimate for 2019-20 wheat production (excluding durum) to 143.8 million metric tons this month, up from 141.3 mmt last month, a level 11.8% or 15.2 mmt higher than realized in 2018. reports this as a combination of seeded area estimates reported by member countries while combined with yield estimates from the Monitoring Agriculture with Remote Sensing (MARS) satellite technology.

Despite a larger crop in Europe, along with bearish global data reported by USDA this month, European milling wheat is on the move higher with a focus on the North American situation.

September Paris milling wheat gapped higher in Monday's trade while the United States markets were closed for the Memorial Day holiday, a move that set the tone for this week's trade. A second bullish gap was formed in Tuesday's trade, while Tuesday's close was higher for the ninth time in ll sessions, up EUR2.75 to EUR184.75.

Of the major wheat contracts, this Paris milling wheat contract was the first to finish above the resistance of its 200-day moving average, although the U.S. soft red winter contract is nearing this resistance. As well, the European contract also closed above the 50% retracement of the move from its August 2018 high of EUR200.25 to the May 2019 low of EUR167.

The blue line on the attached chart represents the September/December futures spread which has narrowed from minus EUR4.25 in late April to minus EUR3.25 this week, a sign of supportive commercial activity, with likely support from noncommercial short-covering as uncertainty grows over global production potential.

The red line on the lower study points to the continuous active soft red winter wheat/Paris milling wheat spread, calculated at $21.50/mt USD at the time this chart was created, (European milling wheat over SRW). This is the narrowest this spread has been in almost exactly one year, which could be a bearish factor for North American exporters as they compete with the increasing supplies available to European exporters.

The next chart resistance lies at EUR187.55/mt, the 61.8% retracement of the discussed downtrend.

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