Canada Markets

Are Spring Wheat Prices Set to Bottom?

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The red line represents the trend in the Minneapolis Wheat Spot Index, while the blue line represents the five-year seasonal index for spring wheat. This chart signals a tendency for prices to form a bottom in late August. (DTN ProphetX chart)

This week, Saskatchewan Agriculture released their weekly cash price for No. 1 CWRS at $206.46/metric ton, down $8.99/mt from the previous week and the lowest price seen since Aug. 31, 2016 when this weekly price was reported at $197.66/mt. The December MGEX hard red spring contract reached a fresh contract low of $5.14/bushel this week, but late-week trade shows this market attempting to stabilize.

As seen on the attached graphic, DTN's 5-Year Seasonal Index shows Minneapolis wheat reaching a seasonal low in late August, so prices could be showing signs of bottoming. Another sign that may be indicative of the wheat market bottoming, as of Aug. 15, the spot Minneapolis wheat future closed in the lower 11% of the market range traded over the past five years, increasing the risk for sellers. Both the seasonal trend and the price probability help make up a portion of DTN's Six-Factor methodology to market analysis.

Another signal, this time in the global market, reports this week indicate that Egypt, the world's largest wheat buyer, bought 1) more than it had tendered for and 2) prices paid were close to the price levels paid earlier in the month, despite this week's weakness in futures both in Europe and the United States.

Looking at Saskatchewan Agriculture's weekly cash data over the past five years, weekly lows were reported to be reached during a range from July 11 to Sept. 20. The lowest low reached over this period was seen on July 23 2014, at $169.56/mt, while the average over the five years is calculated at $203.63/mt.

The question asked is to what extent did prices recover after reaching the cash low in conjunction with the seasonal index low reported for August. Over the five years (2014-15 through 2018-19), the price recovery averaged $38.84/mt by the end of the calendar year (Dec. 31), while taking an average of 11.8 weeks to do so.

When a longer time frame is considered, or the following July 31 that is the end of the crop year, the recovery from the cash low reached in the July-through-September period has averaged $58.99/mt, while taking an average 31.6 weeks to do so.

Over the past five years, the cash low in the July/August/September period has been a reliable indicator of a pending move higher according to Saskatchewan Agriculture cash data, which it then becomes a decision surrounding how long grain can be held to achieve higher prices.

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Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow him on Twitter @Cliff Jamieson

(ES)

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