Canada Markets

March HRS Wheat Seeks Direction While Posting Lower Weekly Highs

By Cliff Jamieson , Canadian Grains Analyst
The March Minneapolis wheat future has now spent 20 weeks trading within a bearish descending-triangle pattern. While textbooks would assume a down-side breakout from this pattern, trade volume has perhaps acted different than would be expected in recent weeks. (DTN graphic by Nick Scalise)

Wheat's poor export performance in the United States market, with wheat sales and shipments far behind the levels required to meet USDA projections, has led to ongoing trade within a right-angle descending triangle pattern, as seen on the attached March Minneapolis weekly chart. This pattern, as seen on the chart, is characterized by firm support within the $9.16 1/2 to $9.20/bu. range as found from the four weekly lows since the late-July high, along with a series of lower highs, along with a number of declining weekly highs.

This pattern is not a bullish one, with the assumption being that the break-out from this pattern will be to the down-side. The one caveat is that volume within this pattern would normally diminish as the trade gets closer to the apex of the triangle, which we have not seen. Weekly volume the week of Nov. 26, as seen on the attached chart, was 38,009 contracts and was the highest weekly volume since September 2011. Also, this particular pattern would normally show a lighter volume on weekly rises, while a higher volume would be seen on weekly dips. This is not the case, with the high volume found in the week of Nov. 26 corresponding to a much higher trading bar from the previous week.

This particular pattern is inconclusive at present and additional time will be required to determine in just how this move will play out.

This week's trade was sideways, within the trading range of last week. Today's close, at $9.34/bu. on the March contract, was closer to the bottom of the weekly range, which indicates technical weakness. As well, this week's high came within 1 1/2 cents of testing the March contract's 20-week moving average, which has turned lower and is downward sloping. This also points towards technical weakness.

Weekly stochastic indicators are trending lower, just about to enter the over-sold region, which may trigger technical buying that could provide badly needed support to the future.

Working against the bearishness of this technical pattern is the seasonal trend for wheat. Over the past five years, the five-year seasonal index for HRS wheat (not shown) has gained 25% from the third week in December to the annual seasonal high in the third week of February.

Markets are also supported by the notion that dwindling exportable stocks in the Black Sea countries will soon force global wheat buyers to North America. A U.S. sale of 240,000 mt to Egypt, announced earlier this week, is hoped to be a start for more aggressive sales. As well, the continued dryness plaguing the hard red winter crop in the U.S. is also supporting the market. Ratings for the crop are the lowest ratings given during the 30-some year period that these ratings have been released. Continued dryness and abnormal heat may be indicating a potential sharp decline in production, although the extent of the damages will not be realized until spring.

In Canada, producers have welcomed this fall's attractive prices, as well as the deregulation of the wheat market, as evidenced by producer deliveries being 6.1% ahead of one year ago and 15.7% higher than the three-year average, as of week 18. Exports are lagging however, with year-to-date exports from licensed facilities reported at 5.3% behind last year and 3.7% behind the three-year average. While there are ample stocks of quality wheat in North America, the Canadian dollar exchange rate, which is trading above parity with the U.S. dollar, is undoubtedly impacting Canada's competitiveness in export markets.

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

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