Technically Speaking

Minneapolis Wheat on Rocket Shot Toward $10

Dana Mantini
By  Dana Mantini , Senior Market Analyst
The chart above is a monthly continuation chart of Minneapolis wheat, reflecting the front or spot futures month. The next level of chart resistance would have to go back to the major drought year of 2012. (DTN ProphetX chart)

MINNEAPOLIS SEPTEMBER FUTURES:

The ag markets' focus, which has been squarely centered on corn and soybeans for the past year or more, has now moved to the two crops that are burning up -- spring wheat and canola. We'll focus on Minneapolis new-crop September wheat, representing the hard red spring crop.

With hard red spring wheat ending stocks projected to be just 116 million bushels (mb) on the July WASDE report, the lowest level since 2008, the loss of production may not yet be over. Searing heat and dryness for the next two weeks is threatening to further decimate already-wilting hard red spring and white wheat in the U.S. and spring wheat in the Canadian Prairies.

This is a market that is terribly overbought with respect to momentum indicators; the slow stochastic reading is at 97 and the Relative Strength Index (RSI) is over 70. But who is going to sell this market with the forecast ahead? Sure, we could get some unexpected rains and the market could fall sharply. However, nowhere on the chart is there technical resistance until we get to first $9.75 to $9.80 and then $10.35 -- numbers last reached in 2012 in the year of the major North American drought. Beyond that, we are looking at $11 or higher last reached in 2011. These are numbers nobody thought possible just a few months ago; the world was projected to produce a record large wheat crop at that time. The spring wheat disaster is occurring at the same time both Russian and Canadian crops are also moving down sharply, and heavy rains and flooding in the EU could compromise yield and quality in those crops.

NOVEMBER CANOLA FUTURES:

As is the case with Minneapolis wheat futures, November canola futures are approaching an overbought condition as well. However, as in spring wheat futures, there is nothing to say that canola can't go even higher. With two weeks of steamy temperatures and little rain for the next two weeks, we could see this market extend gains even further.

Just since a year ago, canola futures, as detailed on the monthly chart, have rallied over C$485 per metric ton (mt). A rally and close above C$950 on November and the July high of C$961.80 should carry canola to new heights. However, as in Minneapolis wheat futures, should the weather turn wet suddenly, we could have a sharp correction. But most of the damage is likely done.

AUGUST CRUDE OIL FUTURES:

Following last week's decision by the OPEC+ group to raise production of crude oil to September of 2022, crude oil futures have now fallen, from a high near $77 per barrel on August futures to Monday's reading near $69 per barrel.

However, the euphoria of lower energy prices could be short-lived. August crude oil futures are close to long-term trendline support near $68, and there is major support just below that at $64 to $65 per barrel. Momentum indicators are approaching oversold, with RSI now below 50% and slow stochastics down near 15%. Look for support to emerge on August crude oil futures over the next $1 to $3 drop.

Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of grain and soybean futures involve substantial risk and are not suitable for everyone.

Dana Mantini can be reached at: dana.mantini@dtn.com

Follow Dana on Twitter @mantini_r

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