Canada Markets

Seasonal Strength Helps Provide Lift to HRS Prices

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The May HRS contract closed higher for the second week while breaking trendline resistance in place since mid-December. The second study indicates momentum shifting towards a move higher. The fourth study indicates support coming from the commercial trade, while the fifth study shows a muted response from the investor trade. (DTN graphic by Nick Scalise)

Old-crop hard red spring wheat on the Minneapolis Grain Exchange closed higher for the second week, with help coming from the weaker United States dollar while this market tends to see seasonal strength support prices into early June.

The attached chart shows the May HRS contract gaining 22 cents this week to close at $5.89 1/2 per bushel, its second consecutive higher weekly close. Just three weeks ago the market reached a fresh contract low of $5.48 3/4/bu. after taking out the Oct. 1 low of $5.53 1/4/bu.

The challenge for this market will be the $6/bu. level. This level represents the 38.2% retracement of the move from the December high to the March low, and may also act as psychological resistance.

As can be seen on the attached weekly chart, the $6/bu. level was a challenge for the market in the seven weeks between the week of October 6 and the week of Nov. 17, and was then tested again in the week of Jan. 20 and once again in the week of Feb. 17.

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The chart indicates a move above the downward-sloping trendline which began with the December high, while the gradual move to an uptrend is also seen with a recent bullish cross-over of indicators as seen in the second study while in over-sold territory.

The fourth and fifth studies show support coming from both the commercial and non-commercial side of the business in the past week. The May/July carry has narrowed over the past three weeks, ending at a carry of 4 1/4 cents (fourth study, July over the May) with the weekly chart indicating a trend of narrowing carry since mid-September when this carry was at 12 1/4 cents.

A continued move higher might depend on further support from the noncommercial or investor side of the industry. CFTC data shows noncommercial traders holding a net-short position of 1,092 contracts as of Mar. 11, the first net-short position held since October 2013. Today's report indicated a paring of this position to a net short of 365 contracts. As can be seen in the lower trend, the investor trade has failed to trend in either direction over the past four weeks and time will tell whether money will flow into this market which may have a bearing on the market's ability to trend in either direction.

Not shown on this study is the five-year seasonal chart which provides a glimpse of the grain's price movement tendencies over the course of the year. Over the past five years, prices have trended higher on average from now until late May/early June, averaging an approximate 3% gain from 99% of the seasonal index up to roughly 102% of the seasonal index by late May.

The third study shows a setback in the May HRS/May HRW spread this week, a trend which is seen across old and new crop months. The HRS premium over HRW reached a weekly high of 34 1/4 cents two weeks ago while closing at 20 cents this week. This is despite reports of China buying high protein supplies from the U.S. last week and a further 450,000 mt from Canada and Australia this week. Current dry conditions over the Southern Plains of the U.S. may have an impact of increasing protein levels in the HRW crop which may be easing concerns over protein supplies in the long run.

Bids for 1 DNS in Portland are virtually unchanged from last week at $2.60 to $3.25/bu. over the May future, with most trade taking place at $3.10/bu. The June Canadian dollar posted a bullish reversal outside trading bar for the week while gaining 139 points over the week, which will erode bids to prairie producers. More currency-related volatility should be expected on both sides of the border with ongoing speculation that the U.S. will raise interest rates this summer while there's ongoing talk of a further rate cut in Canada.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

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