Canada Markets

Investor Trade Weighing Heavily on Wheat Prices

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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Investors are becoming increasingly bearish wheat futures, with this chart showing the trend in the noncommercial net futures position for hard red spring wheat, shown by the blue histogram bars. The black line represents the continuous active weekly close for HRS, as plotted against the left vertical axis. (DTN graphic by Nick Scalise)

The actions of investors, or noncommercial traders, are just one of the six factors studied by DTN in order to analyze markets and determine strategies. The attached graphic shows a longer-term view of the actions of these investors in the hard-red spring wheat market, as seen by the blue bars of the histogram as determined by weekly CFTC data, along with the trend in price. This is shown by the black line, which represents the continuous active weekly close.

Investor selling has weighed heavily on prices over the past three weeks, with the weekly net-short position reported at 3,525 contracts as of Aug. 18, while was reported at a net-short of 6,279 contracts as of Sept. 8. This happens to be the largest net-short position (or most bearish holding) held since April 19 2005 when the net-short position was reported at 7,892 contracts.

Despite the bearish actions of investors, commercial buying has supported prices and has helped contribute to a short-term uptrend since the Sept. 3 contract low of $4.98 3/4 on the December chart. The impact of this move is seen by the move higher by the black line in the lower-right of the chart.

The move may be short-lived. Tuesday's trade saw a close in negative territory with further selling seen by investors. Monday's high fell just 2 cents short of testing the $5.28 1/4 cent level, which would represent a four-week high reached in this week's trade, which is one signal of a change in trend, or in this case, a break-out from the largely sideways move in wheat futures.

The wheat market may require an injection of positive news in order to prevent a test of contract lows and a further move lower, while the actions of noncommercial traders or investors could have a role to play in the move.


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