Canada Markets

Spring Wheat Futures Come to Life

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The December MGEX spring wheat contract rose for the third straight day on Friday, posting its biggest weekly gain in 17 weeks. The first study points to the Dec/March spread narrowing, a sign of supportive commercial activity, while the second study shows noncommercial traders holding a record bearish net-short futures position as of Sept. 10, while reported to pare this position for the first time in 13 weeks in data reported for Sept. 17. (DTN ProphetX chart)

MGEX spring wheat for December delivery closed higher for the third straight day on Friday as traders come to terms with the late harvest and the ongoing challenges faced in taking off this crop on both sides of the border. The December contract ended 4 cents higher at $5.24 1/4 per bushel, while ending 37 3/4 cents above the Sept. 3 low of $4.86 1/2 per bushel. Over the week, the December spring wheat contract gained 18 3/4 cents, the largest one-week gain seen on the continuous active chart since the week of May 20.

While not shown on the attached graphic, the 11-cent move higher over the past two sessions was supported by the first and second-highest daily volume shown for the December contract over the life of the contract.

Looking strictly at technical signals, Friday's high in the December contract came close to a test of the 50% retracement of the move from the June high to September low, calculated at $5.39 3/4 per bu. Today's move failed to sustain a move above the 38.2% retracement of the same downtrend, calculated at $5.27/bu. At the same time, today's move closed above the 33% retracement line at $5.21 1/2 while also saw the first close above the contract's 50-day moving average seen since June 28.

The upside target remain at the 38.2% level of $5.27/bu., the 50% retracement level of $5.39 3/4/bu., along with the 100-day moving average, calculated at $5.41/bu.

The first two studies point to the bullish nature of the move. The first study shows the Dec/March spread narrowing to minus 13 1/4 cents this week, narrowing from its weakest level seen this month of minus 15 cents seen as recent as Sept. 13. This is a signal of supportive commercial buying behind the move, a group that is seen holding a record net-long futures position as of Sept. 17 of 18,449 contracts.

The bars on the next study shows noncommercial traders holding a record net-short position of 18,673 contracts as of Sept. 10, while later-released data as of Sept. 17 shows this group paring this position for the first time in 12 weeks to 18,309 contracts net-short. A fresh record net-short futures position was reported in each of the past six weeks. The week-over-week gain reported in the week of Sept. 10 was the largest seen in six weeks. This data could be viewed as a bullish situation for spring wheat, when a sudden shift in market sentiment can lead to sudden short-covering and a rapid rise in prices.

While not shown on the weekly chart, signals on the weekly chart and a possible signal on the monthly chart bears watching. The weekly chart shows a four-week high reached during this week's trade of $4.34 3/4 per bu., which is a bullish technical signal. This move is accompanied by a bullish cross-over of momentum indicators while in over-bought territory.

As well, the monthly chart, also not shown, shows this month's high of $5.34 3/4 per bu., just 2 1/2 cents away from printing a bullish outside bar on the long-term chart, which indicates that this month has traded lower, then higher than the previous month's range, while closing higher over the month. There remains six more trading days for this signal to be confirmed.

DTN charts indicate that over the past five-years, prices tend to bottom in September and rally into late November/December. Over the past five years, the December contract has fallen in three of five years in the month of September, while averaging an 18 3/4-cent drop over this period.

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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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