Canada Markets

Investor Positions May Leave HRS Prices on Shaky Ground

By Cliff Jamieson , Canadian Grains Analyst
The blue bars on this histogram indicate the net position held by non-commercial traders of hard red spring wheat. As of the latest weekly CFTC data as of May 6, non-commercial traders had increased their net-long position by 16.4% from the previous week to 18,102 contracts, the largest position held since June 2011. The black line represents the continuous weekly price, charted against the left vertical axis, which clearly indicates the impact of investor trade on price trends. (DTN graphic by Nick Scalise)

As of the most recent Commodity Futures Trading Commission data for the week ending May 6, non-commercial traders or investors had increased their net-long position of red spring wheat contracts to 18,102 contracts, a 16.4% jump from the previous week and the largest net-long position held since June 2011.

The actions of the non-commercial traders or investors is just one of the six factors followed in DTN analysis, although is an important one in that their actions have a huge bearing on price direction over time, or trend. The black line on the attached chart represents a line graph of the weekly HRS price, which clearly reflects direction influenced by the moves of investors within the marketplace.

On April 29, this column looked at the possibility of both HRS and HRW breaking out of the sideways trading range that had previously defined trade, with the range for HRS between the March high of $7.63/bu. and the April low of $7.06 1/2 being 56 1/2 cents on the July contract. Conventional technical analysis theory would set the next upside target at $8.19 1/2/bu., or in other words, the $7.63/bu. high plus the 56 1/2 cents width of the previous range. Prices have since reached a high of $8.13 1/2/bu. on May 6, just six cents short of the upside target and also on a date which marked the week ending for the CFTC data.

Since that time, prices drifted sideways for two days, then fell 10 1/2 cents on May 9 and a further 4 1/2 cents today. While the overall trend may remain higher for this market at this time, there seem fewer bullish reasons to buy at this time. Markets may feel heavy due to the weight of Canadian stocks, reported by Statistics Canada to be 17.348 mmt as of March 31 for all wheat, up 50.7% from year-ago levels, while the USDA's report on May 9 suggested that despite forecasts for falling global production and falling global demand, year-ending global stocks would be slightly higher at the end of 2014/15 than forecast for 2013/14.

The market's technicals also point to stochastic indicators which are in over-bought territory, seen on both the daily and weekly charts, which increases the risk of a sudden sell-off by investors due to growing nervousness and a lack of supportive bullish headlines.

On the bull-side of the argument, seeding progress in the six States monitored for spring wheat planting remains well behind normal. As of May 11, 34% of the crop had been planted, well below the five-year average of 53%. As with last week, the furthest behind remains Minnesota, where 8% had been seeded, down from the five-year average of 53%, while in North Dakota, 11% had been seeded as compared to the five-year average of 39%. The significance of this becomes more apparent when one considers the number of acres expected to be seeded in these States. Minnesota is forecast to seed 1.2 million acres, or 10% of the total 12 million acres expected, while North Dakota is forecast to seed 5.9 million acres, or 49% of the country's total. This bears watching.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

(ES)

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