After reaching an April 1 low of $7.74 per bushel, the December Minneapolis hard red spring wheat future rallied to a high of $8.44 1/2/bu. on April 30, just short of the $8.45/bu. resistance level, which represents the 38.2% Fibonacci retracement of the trend lower from the November high of $9.59 1/2/bu. to the April low of $7.74/bu.
After trading sideways for the first few days of May, prices have backed off in today's session to close 17 1/4 cents lower at $8.11 1/4/bu. The current day's trading session has seen the low reach $8.11/bu., which tested trend line support which began with the April 1 low at $8.10 1/2/bu.
Other chart-based support in this price vicinity is the December contract's 20-day moving average at $8.10/bu., while the 50-day moving average remains slightly lower at $8.06/bu.
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Despite a larger loss in the new-crop future, the December price action may be viewed as more encouraging, as compared to the price move in the old-crop July future in today's selloff (not shown). First of all, the July future gapped lower at the open, with a 1/4 cent gap left between Friday's low at $8.16/bu. and today's high at $8.15 3/4/bu. Secondly, the July old-crop future showed further weakness by breaking through similar short-term trend line support at $8.15/bu., while ending the session at $8.05 3/4. A bearish grain inspections report released this morning contributed to pressure on old-crop price levels.
So how are the market participants reacting to current news with respect to new-crop wheat? First of all, noncommercial investors, or speculators, have added 291 contracts to their net-long position as of April 30. After reaching a net-long high of 22,351 contracts in May 2011, a recent low at a 612 contract net-short position was reached as of April 9, 2013. Since that time, noncommercial investors have added to their net-long position for the past three weeks, with the most recent position held by this group of speculative interests at 1,708 contracts, as of April 30.
Commercial traders are also revealing their growing bullishness as seen in the futures spreads. The nearby May/July spread gained 5 3/4 cents to reach 45 1/4 cents in today's session, indicating old crop bullishness as viewed by the commercial traders. New crop spreads are also showing signs of concern within the commercial trade, with the Sept/Dec spread gaining 2 cents to close at minus 7 1/4 cents (December above the September by 7 1/4 cents) and the Dec/Mar spread gaining 1 cent to minus 10 3/4/bu. (March above the December).
Spring wheat planting in the Northern Plains is reported as being 23% complete as of May 5, which compares to 82% completed at the same time last year and an average of 50% over the course of the past five years. Watch for further tests of support in upcoming sessions. Should trendline support fail, a retracement to the $7.74 low is possible. Moves to the upside will continue to be challenged by the resistance at $8.45/bu.
Cliff Jamieson can be reached at email@example.com
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