In recent weeks, we looked at the spring wheat forward curve, which is a line created by plotting each contract close over time. At the time it was noted that a change of sentiment is seen early in the 2021-22 crop year when the December 2021/March 2022 contract moves into a bullish inverse, or the December contract trades over the March contract.
The attached chart shows this December contract as of Feb. 2, with the daily close ending lower for a fourth time in five sessions, while testing trendline support at the lower end of the symmetrical triangle chart pattern formed, which often represents a continuation of the current trend.
The recent January high for this contract is seen at $6.69/bushel (bu), which is the highest trade seen on the continuous December chart since August 2017. Resistance on this continuous chart is seen at $6.64 3/4/bu, which is the 50% retracement of the move from the July 2017 high to the Nov. 2019 low. January trade moved above this level in two sessions but failed to sustain the move. A breach of this level could lead to a continued move higher to $7.07/bu, or the 61.8% retracement of the downtrend from 2017 to 2019.
The measuring ability of this chart pattern would indicate that a breakout to the upper-side of this pattern would result in a continued move higher by an amount that is equal to the length of the base of this triangle. This base is measured at 42 cents, while an upside breakout based on the current resistance line would indicate a move to $7.05/bu.
The lower study shows the December/March futures spread weakening to an inverse of 1/2 cent (December trading over the March) on Feb. 2, although a bullish spread is not normally the case for this spread at this time. During the past five years, this spread ranged from minus 5 1/4 cents to minus 11 1/2 cents on Feb. 2 (March trading higher than the December), while averaging a 9.6-cent carry.
Market fundamentals also point to this as a market to watch. Spring wheat will compete with a number of competing crops on both sides of the Canada-U.S. border, while there are some predicting that Russian producers may move to competing crops in order to avoid the variable export taxes proposed by government for the 2021-22 crop year.
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Cliff Jamieson can be reached at email@example.com
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