December MGEX spring wheat ended 7 cents per bushel lower in Tuesday's trade, its third consecutive lower close, although the smallest loss realized over the three sessions. While this contract attempted to post a recovery with a 10 3/4-cent gain realized for the week of June 24, this week's trade has already resulted in a loss of 16 1/2 cents over the first two days of July. Interestingly, a bullish outside-day trading bar formed in trade on Monday, June 24, was followed by a bearish outside-day trading bar in trade on Monday, July 1. Tuesday's low saw the December contract reach its lowest level traded in over five weeks.
Technical support is being tested at $5.50 1/2 per bushel (bu), the 67% retracement of the move from the May 6 contract low to the $5.93/bu high reached on June 12. The $5.50/bu level could also be viewed as a psychological level of support.
The blue line on the first study of the chart shows the December/March spread weakening 1 cent on Tuesday, a sign of a growing bearish commercial view of market fundamentals. The current spread of minus 14 1/4 cents is the weakest seen since mid-May, with potential chart support at minus 14 3/4 cents. A large projected U.S. carryout along with mostly favorable weather in the nearby forecast has eased concerns.
The blue bars of the histogram on the second study shows the bearish net-short position held by noncommercial traders growing larger for the first time in four weeks to 3,641 contracts net short, the largest bearish position held in four weeks as of June 24 CFTC data.
Switching to fundamentals, Monday's weekly Crop Progress report in the U.S. shows that country's spring wheat crop condition rated at 75% good to excellent, above the five-year average of 66.2% good to excellent. The percentage of the crop rated as headed is estimated at 25% of the crop, as compared to the five-year average of 52%, which could at a glance appear bullish and supportive for prices.
Looking at historical data, this estimate appears close to the 26% (29%) of the crop headed as of June 30 in 2014 and above the 18% of the crop that was headed as of July 1, 2013, (32%), with the previous five-year average in brackets. In 2013, this rating was within 2 percentage points of average by mid-July, while in 2014, the percentage of the crop rated as headed was equal to the five-year average only one week later as of July 6. Both years saw this estimate remain in lock-step with average levels from early July forward.
As stated by DTN Contributing Analyst Joel Karlin in a May 24 Fundamentally Speaking blog, "It does appear that summer weather is the real key to yields as well as prices." While the Northern Plains and the Canadian prairies are expecting to see precipitation over the next seven days, cooler temperatures on the prairies are also forecast for the Northern states in the six-to-10-day window and could act to slow crop development, along with areas on the prairies still lacking precipitation.
Cliff Jamieson can be reached at email@example.com
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