Canada Markets

Spring Wheat Futures Move Sideways

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The December MGEX spring wheat chart shows the price struggling with the contract's 20-day moving average for a fourth day at $5.58/bushel, while finding support during the last three sessions at $5.47/bu, the 50% retracement of the move from the contract's August-through-October rally. The blue bars of the histogram in the second study shows an increasing noncommercial net-long position in spring wheat futures, the largest held since January, 2017. (DTN ProphetX chart)

December MGEX hard red spring wheat closed 3 3/4 cents lower on Tuesday, near the lower end of the session's trading range after reaching the highest trade in five sessions on Tuesday.

Of the three United States wheat markets, spring wheat has dipped the furthest from October highs, with today's close 6% below the October high, which compares to 4.7% below for soft red winter wheat and 3.9% below for hard red winter wheat.

The move in spring wheat has resulted in a dip to the 50% retracement of the move from the contract's August low to October high, calculated at $5.47/bushel (bu). This level acted as support in trade from Oct. 29 through Nov. 1. Just below this level lies the contract's 50-day moving average at $5.45/bu and the 200-day moving average at $5.44 1/2 per bushel, providing additional support.

While there was a favorable short-term signal formed on the daily chart in Nov. 2 trade with a bullish, outside-bar formed, the December contract has shown technical weakness at the contract's 20-day moving average at $5.58/bu for four consecutive sessions, preventing a further move higher.

As seen with the blue bars on the histogram on the second study, the noncommercial net futures position moved into a bullish net-long position in the week-ending Oct. 13, while has increased in each of the two following weeks to a net-long position of 12,271 contracts, as of Oct. 27. Spring wheat is the last of the major grains to move into net-long territory, with the same group holding a bullish SRW position since July and a bullish HRW position since early September. This is the largest bullish position of spring wheat held since January 2017 and could be highly correlated to the hype currently seen across the grains, with the same group holding a record net-long position in soybean futures as of Oct. 27. The risk is that a sudden change in speculator sentiment may weigh heavily across all of the grains.

As stated in today's closing comments, spring wheat trade in November tends to follow in the same direction seen in the month of October, as seen in four of five of the past years or 80% of the time. Over the past five years, the December contract monthly chart shows a loss in the month of October followed by a loss in the following month of November in three of the five years.

Only once in five years was a monthly increase in the month of October followed by a gain in the month of November. As well, a loss in the month of October in the 2018-19 crop year was followed by a gain in the following month, or in other words, prices diverged over these two months only once in the past five years or 20% of the time. This study would indicate that the 12-cent gain seen on the monthly chart for the month of October will be followed by a further gain in November.

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

Follow him on Twitter @Cliff Jamieson

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