Canada Markets

After reaching a $6.38 3/4 per bushel high on June 30, the September MGEX spring wheat contract has consolidated while forming a pennant technical chart pattern, which was broken during Monday's trade with a double-digit move lower. The September contract ended at $5.97 1/4/bu, down 10 1/4 cents.

Monday's trade saw prices break lower from the recent period of consolidation, as shown by the two converging trendlines (shown in blue) as traders failed to find a bullish argument needed to support prices or to lead to an upside breakout from the consolidating trade.

The contract posted mixed results with Monday's trade breaking below psychological support at $6/bu for the first time in 10 days while also closing below the 38.2% retracement of the move from the May 5 low to the June 30 high, which is found at $5.98 1/2/bu. At the same time, Monday's session saw prices dip below both the 20-day moving average and the 200-day moving average while recovering late session in order to close above both of these moving averages.

It's interesting to note that the latest CFTC report shows noncommercial traders or investors turning bullish for the first time in 12 weeks (third study) as of July 7. Investors held a net-long position of 386 contracts at the end of this week, from a net-short of 2,285 contracts the previous week. At the same time, the fourth study shows commercial traders becoming increasingly bearish, shown by weakening spreads (increasing carry) which are also poised to test chart support.

Monday's USDA Crop Progress report shows the U.S. spring wheat crop well ahead of average growth stage, with the crop 91% headed as of July 12 as compared to the 2010 to 2014 five-year average of 66%. Monday's National Weather Service moisture forecasts suggest timely rains for much of the prairie and Northern Plains crops. Monday's report pegs the U.S. spring wheat condition at 71% good to excellent, up 1 percentage point from last week as well as 1 percentage point above the same date last year. This compares to the three-year average for this period of 68.3% and the five-year average of 72.2%.

Should prices fail to hold at moving average support, with the 20-day moving average at $5.94 1/2 and the 200-day moving average at $5.96/bu, a test of support at $5.86 may follow, which is equal to the 50% retracement of the move from the May low to the June high. A band of support also remains below ranging from $5.68 1/2/bu, the 66.7% retracement of the same uptrend to $5.77 3/4/bu, the contract's 100-day moving average. Within this near-10-cent range lies the 61.8% retracement level at $5.73 3/4 and the contract's 50-day moving average at $5.77 1/4/bu.

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

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