Canada Markets

Spreads Signal Waning Demand for Protein Wheat

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The brown line on the upper-chart shows the spread between DTN's National Spring Wheat Index and National Hard Red Winter Wheat Index. The blue line represents the continuous active HRS/HRW futures spread. Both have been in a downtrend since September. (DTN ProphetX chart)

Both soft red winter wheat and hard red winter wheat reached fresh highs in their short-term uptrends on Wednesday, while ending well-below Wednesday's session highs with a mixed close seen across the three wheat markets. Wheat markets showed signs of stalling, with likely spillover seen due to the double-digit sell-off in soybeans.

Looking across the grains, Chicago SRW has shown resilience this week, up 8 3/4 cents over the first three days, while HRW is up 1 3/4 cents and HRS is down 2 cents. Spring wheat trade has struggled to reach a test of its January high at $5.66 1/4 per bushel and despite reaching a higher-high in each of the past two sessions, has slumped back to finish near the mid-point of the daily trading range each day this week.

Another sign of concern for spring wheat is seen on the attached chart. Spreads between spring wheat prices and hard red winter prices can be viewed as a proxy for the demand for the higher protein spring wheat relative to the lower protein HRW.

The upper study shows the relationship between DTN's National Spring Wheat Index to DTN's Hard Red Winter Wheat Index, based on cash data obtained by DTN across the northern states. This spread has weakened from $1.30/bu. (spring wheat over HRW) on Sept. 25 to $0.70/bushel on Jan. 15, a drop of 46% and the lowest spread calculated in roughly four months. This remains well-below the three-year average for this date of $1.50/bu.

The lower-study shows the trend in the spread between the continuous active HRS contract and the continuous active HRW contract, in today's case the March contracts. This particular spread closed at 59 3/4 cents on Wednesday (HRS over HRW), although is down sharply from the $1.50 1/4/bu. high reached on Sept. 25. Like the cash market data, the trend remains lower, with Wednesday's spread the weakest seen since Dec. 31 2018, or over one year. This spread has averaged $1.29/bu. over the past three years on this date.

Current short-term spring wheat trade remains trapped between the support of its 200-day moving average at $5.50 and its January high of $5.66 1/4 per bushel.

A breach of technical support, along with confirmation seen with the weakening HRS/HRW spreads, could signal a selling opportunity.

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

Follow him on Twitter @CliffJamieson

(ES/)

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