Canada Markets

Wheat markets finished higher this week after six consecutive losing weeks. Monday's low of $5.52 1/4 on the nearby March contract was only 11 1/4 cents above the October 1 retracement when prices bottomed this week and moved higher with the support of commercial buying interests.

The March contract showed the potential to end the week showing a bullish technical signal, although the U.S. dollar rally along with non-commercial liquidation dashed hopes of this taking place, with morning pressure turning a 6-cent gain into a 2-cent loss for the session.

The pattern looked for was a bullish key reversal, with this week's trading range trading both higher and lower than last week's range, which did happen, combined with a close above last week's high, which failed to take place. This would have acted as a strong signal of a turnaround in price direction. Another possible bullish symbol which may have risen from today's activity is the bullish engulfing pattern. This is seen on the attached chart, where this week's high and low engulf that of last week, which was the case, while this week's green bar or candle must also engulf the previous week's red candle. This was not the case given that today's close failed to take place above last week's open with both equaling $5.77/bu.

The second study would indicate that the weekly chart may be on the verge of a cross-over of stochastic momentum indicators, with the most bullish crosses taking place while in oversold territory or below 20%. Only time will tell if this will be the case or if momentum will simply shift sideways.

The third study indicates the spread between nearby March HRS and March HRW leveling off at 15 1/4 cents (HRS over HRW), which acts as a proxy for the demand for protein supplies. This spread has moved from a low of minus 31 1/4 cents (HRW over HRS) in mid-October to the most recent high of 16 1/2 cents (HRS over HRW) prior to settling at 15 1/4 cents this week.

The lower study indicates that wheat prices continue to find support from commercial interests. Over the course of the week, the March/May spread narrowed 3/4 cents to a narrow carry of 3 3/4 cents (black line), while the May/July spread narrowed 1 3/4 cents to a carry of 6 cents (blue line). This commercial buying helped propel March HRS to a weekly gain of 20 1/4 cents in the wake of non-commercial liquidation. Although not shown, this week's CFTC data indicates that in the week ending February 3, non-commercial traders or investors had reduced their net-long position in HRS futures by 30% to 3,702 contracts, the smallest net-long held in 12 weeks and the third drop in four weeks.

To gain an appreciation for investor's overall lack of confidence in holding long wheat positions, the same week saw investors move from a net-short position of 78 contracts of SRW wheat to a net short position of 19,366 contracts. Also, investors or non-commercial traders of HRW were reported to hold a net-short position of 297 contracts, the first net-short position held since the week of July 28 2013. This group is slowly but surely giving up on their bullish bets on wheat.

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

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