Canada Markets

Early forecasts for 2015/16 wheat markets so far suggest a continuation of a well-supplied global market.

The USDA's early look at the upcoming crop year in its Grains and Oilseeds Outlook released Feb. 20 suggested U.S. wheat ending stocks are estimated to grow by 10% to 763 million bushels in 2015/16. This would be the highest stocks since 2010/11, while large global supplies of wheat and corn are expected to weigh on the wheat market.

A brief comment from USDA suggests global production is "expected to fall shy of last year's record." Meanwhile, one of the most bearish outlooks for global wheat comes from the United Nations FAO where forecasts suggest only a 1% reduction in production in the year ahead to 720 mmt.

As seen on the attached chart, the December hard red spring wheat contract consolidated last week and then again on March 9, while holding above the Feb. 26 low of $5.75/bu. Nearby resistance may be found at $5.87/bu, which is found on the downward-sloping trendline drawn from the Dec. 18 high (not shown), while a move above a recent weekly high of $5.97 1/2 may be required before a reversal in trend could be considered. Should this move take place, a retracement to $6.21 1/4 could perhaps be viewed as the first target.

The second study indicates that current momentum indicators are deeply oversold, leaving the market vulnerable to a sudden change in direction. The third study indicates a gradual widening of the December/March spread. This spread closed as narrow as minus 6 1/4 cents in December on the weekly chart (March over the December), while ended last week at a 12-cent carry. This could be viewed as a gradual increase in bearish sentiment among commercial traders and the widest this spread has traded since last September.

Noncommercial traders, on the other hand, are holding a modest net-long position of 193 contracts of spring wheat, a small recovery from the 86 contracts held last week which was the smallest net-long position held since Oct. 1 2013. A prolonged change in trend will require renewed interest from this group of traders.

The red line in the lower study represents the Dec HRS/Dec HRW spread. This spread has trended higher (HRS increasing in value relative to HRW) since Dec. 15 and reflects a growing interest in higher quality supplies. Last week's close was 23 1/2 cents (HRS over HRW) and represents the highest level seen over the life of the contract.

Cash basis on the Prairies also indicates growing interest for new crop deliveries. The average prairie-wide basis for October delivery has narrowed from as wide as 43 cents under the December in late January to 5 cents over the December in Monday's trade. This represents an average bid of $5.84 1/2/bu or $214.77/mt.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

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