Spring Wheat Reaches Fresh Contract Lows
While hard red winter wheat and soft red winter wheat futures led the move lower with double-digit losses in Monday's trade, the most bearish chart signal was reserved for the spring wheat trade. September SRW lost 12 3/4 cents this session, while giving up close to 38.2% of the June 26-through-July 15 rally. HRW closed 13 3/4 cents lower, having given up close to 75% of the move from the contract's June 26 low to July 9 high.
While September hard red spring wheat lost only 6 1/4 cents this session to $5.06 1/2/bushel (bu), it reached a fresh contract low of $5.04 1/2/bu. A look at the continuous active contract would show potential support at weekly lows of $5.02 to $5.03/bu, while psychological support at $5.00/bu may be key to preventing further losses.
The attached chart shows the continuous December contract, a more appropriate contract given the later prairie harvest. This contract lost 6 cents on Monday to reach a fresh contract low of $5.19 1/2/bu, while the continuous chart shows a lack of support on the chart down to the lows reached in the Dec. 2019 contract, which hit a low of $4.86 1/2/bu in Sept. 2019 and $4.88/bu in Nov. This represents the risk faced in this market.
This comes at a time of seasonal weakness, with the nearby contract tending to bottom in late Sept. While not shown, the nearby Sept./Dec. spread showed signs of weakness in Monday's trade, weakening 1/4 cent to minus 14 1/2, with weakening carry viewed as a bearish signal.
As well, the attached chart shows noncommercial traders increasing their bearish net-short position for three straight weeks to 15,389 contracts as of July 14 (blue bars, first study), the largest bearish position held in six weeks.
This week's Crop Progress report in the U.S. shows the U.S. spring wheat crop stabilizing at 68% good-to-excellent, unchanged from the previous week after falling in four of the past five weeks. The overall condition could be viewed as slightly better than the previous week, with a 1-point shift from poor to fair, along with a 2-point shift from good to excellent.
As the HRW harvest moves north, the average protein is seen improving overall, which is one factor contributing to spring wheat weakness. As of July 17, 263 of 500 expected samples have been tested to average 11.8% protein, up from 11.6% the previous week, 11.3% in 2019 and the five-year average of 11.7%.
Global fundamentals also continue as a bearish feature for wheat prices, with the current USDA forecast for ending stocks of 314.84 mmt a fresh record, up 6% from the previous crop year while representing 41.9% of annual use.
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Cliff Jamieson can be reached at email@example.com
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