Both the hard red winter wheat (HRW) crop in the United States and the hard red spring wheat (HRS) crop in the northern states and eastern Prairies remain in the spotlight as we enter May. The Southwestern Plains have been extremely dry, with the most recent U.S. winter wheat crop condition at the poorest seen in more than 20 years, although next week's forecast shows the potential of two systems bringing precipitation for this area. The Northern Plains and eastern Prairies are about to face a third Colorado low with heavy precipitation forecast, adding further delays to spring fieldwork.
The spread between the two crops can be viewed as a proxy for the demand for protein and signal where concerns are focused.
The April monthly chart shows the December MGEX spring wheat contract gaining $1.05 3/4 per bushel (bu), the third consecutive monthly gain and the largest gain seen during the life of the contract. A fresh contract high was reached on April 28 at $11.90/bu.
The December HRW contract gained 76 cents this month, also a third consecutive monthly gain which also led to a contract high on April 19, while posting weekly losses during each of the past two weeks and closing below its 20-day moving average for the first time since April 7.
As a result, the spread between the two December contracts is seen widening, closing at 38 cents on April 29 (HRS over HRW), up from a low this month of minus 28 1/4 cents reached on April 13 and an even weaker spread of 63 cents on March 8. In order to compare to past years, the last trading day in April saw this new crop spread average 50 cents during the past three years and 44 cents during the past five years.
As seen on the attached chart, this spread has breached the 50% retracement of the move from the Dec. 15 high to March 8 low this week, calculated at 28.6 cents, with the next test at the 61.8% retracement at 50.25 cents. As well, the spread is approaching a test of the down-trend line drawn from the Dec. 15 high, with resistance at 45.5 cents.
Cliff Jamieson can be reached at email@example.com
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