Canada Markets

As seen in the attached chart, old-crop July MGEX futures (weekly chart)is showing positive technical signs, with momentum indicators trending higher and price seeking to hold gains above a down-trend line which has been in place since May 2014.

Support for the market is coming from noncommercial short-covering, largely lead by the Chicago soft red winter market, with recent CFTC data suggesting that investors held a net-short position of 1,487 contracts of hard red spring wheat as of June 2. At the same time, commercial traders are also signaling bullish signs, with the nearby July/September spread reaching a weekly low of minus 11 3/4 cents (September above the May) in the month of May to finish last week at minus 10 cents. CFTC data shows commercial traders cautiously adding to their net-long positions over the past two weeks to 2,527 contracts.

Any form of sustained rally in this market may be difficult to achieve. While there are ongoing suggestions of crop quality damage in the U.S. HRW crop due to excessive rains, this week's winter crop rating, as of June 7, was pegged at 43% Good to Excellent, down just 1% from last week and well above the 30% rating reported this time last year.

The U.S. spring wheat crop is rated as 97% emerged, up from the five-year average of 80%. The crop is rated at 69% Good to Excellent, down 2% from last week and also close to last year's 71% Good to Excellent this time last year.

With this month's USDA report around the corner, the average of analyst's pre-report expectations is looking for global ending stocks to be lowered only slightly from the May report to 200.6 million metric tonnes, while the 2015/16 ending stocks are estimated to increase slightly to 202.9 mmt, the highest level reported since the 2000/01 crop year.

Things to watch in this week's crop reports are the USDA's views on the Canadian crop, with the western Prairies facing dry conditions, and in some cases near-record temperatures, while weather issues in Russia and China will also be watched.

The old-crop July future continues to find support at its 100-day moving average at $5.69 1/2/bu, while failed to test Friday's high during today's session. Resistance remains at the contract's 200-day moving average at $5.92 1/2/bu (not shown), psychological resistance at $6/bu and the April high of $6.06/bu. A continued move, should it happen, could suggest a retracement to $6.39/bu.

The Chicago SRW market should remain the elephant in the room when it comes to the wheat market, with investor's short 57,754 contracts as of the recent CFTC data release. Without a significant shift in the fundamental outlook for wheat, it will take sustained investor short-covering to drive prices higher.

Prairie grain buyers are showing increased interest, with the average Prairie-wide basis reported at 31 cents over the July future, leaving the average CWRS bid on the prairies at $6.10/bu or $224.70/mt.

DTN 360 Poll

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

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