Wheat futures on all three wheat exchanges broke important support levels in the past two sessions, which gives rise to concern surrounding future price action. Ongoing United States data indicate poor wheat export performance combined with moisture hitting the Southern plains, whether it's enough or not, is weighing on markets. Wheat prices have also suffered from the spill-over trade from the recent selloff in the soybean market.
The attached chart indicates the push to lower levels in recent days as seen in the nearby Minneapolis March weekly chart. The March contract found support from its 61.8% retracement of its May through July rally, which was at $8.54/bu. and largely held prices for three consecutive weeks from Jan. 14 to the week of Jan. 28. This support was breached Feb. 1. The next support level to be tested was the January low of $8.30/bu, shown on the chart by the horizontal red trend line, although this support was broken yesterday in Monday's trading session.
Both commercial and non-commercial traders are presenting bearish signals in the market. In the latest CFTC data, non-commercial traders reduced their net-long position in MGEX hard red spring wheat by 1,141 contracts to 3,693 contracts, a slide that has been taking place since December. This net-long position is bound to challenge the most recent lows set last June.
At the same time, commercial traders have indicated their bearishness in the near future as witnessed by the action of the forward spreads. The nearby March/May spread and the more distant May/July spread are showing divergence in today's market, with the Mar/May spread increasing by 1 1/2 cents to a 14 3/4-cent carry and the May/July spread remaining unchanged at a 10-cent carry. The March/May has widened by 4 3/4 cents in the last 30 days, indicating a weakening in cash demand.
It's interesting to note that my calculations for average Canadian prairie basis has narrowed by 28 cents over this same time, from 84 cents under the March to 56 cents under, although this could be largely reflective of changes in the Canadian dollar exchange rate.
While the three wheat exchanges can have varying fundamental outlooks impacting their price movement, all three have exhibited the same pressure as of late. Chicago soft red winter futures broke through the support of the March contract's January low in today's trade, at $7.36 1/4/bu. The Kansas City hard red winter contract broke through the support of both its January low of $7.85 1/4, as well as its 61.8% retracement of its summer rally, at $7.78 1/2/bu.
Focus in the upcoming weeks will be on the export picture and whether exports can be revived at current lower price levels. Much more moisture is required to recharge soils in the hard red winter growing areas of the U.S. and weather will obviously play a role. The breaking of dormancy for the hard red winter crop in the coming months may be key to determining market direction.
Cliff Jamieson can be reached at email@example.com
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