Wednesday's USDA report was viewed as bullish for wheat in the U.S., which may continue to support the uptrend in place since the December hard red spring wheat contract reached a daily low of $4.98 3/4/bu on Sept. 3. The December contract ended 6 3/4 cents higher on Wednesday at $5.27/bu.
Today's report estimated Sept. 1 stocks of all wheat in the United States to be below expectations as seen in today's Quarterly Stocks report, while the annual Small Grains Summary reported the 2015 estimated production to also be lower than expected. Production estimates for all classes of wheat were below expectations except for durum.
With global markets facing pressure given expectations of a record global crop, mixed signals exist, with Canada widely expected to up its production estimate of wheat in Friday's Statistics Canada report, while Australia may be facing El Nino-related weather challenges that has the potential to curb its crop prospects and the government of Russia has just announced that its wheat export tax will be relaxed Oct. 1 which should see increased volumes from that country make their way into global markets.
As seen on the attached chart, the December spring wheat contract is showing a gradual move to the upside, or perhaps as some say, climbing a wall of worry. The move over the past few weeks could perhaps be viewed as a rounding bottom or saucer technical pattern, with a gradual move higher seen since the Sept. 3 low of $4.98 3/4/bu.
Wednesday's high of $5.31 3/4/bu took out last week's high and also reached the highest level in more than five weeks. As well, today's close finished over the December contract's 50-day moving average at $5.26/bu, the first time since July 16 after failing at this resistance level in the first two days of this week. Should this move continue, the target is $5.57 1/2/bu, the 38.2% retracement of the move from the June high of $6.53/bu to the September low of $4.98 3/4/bu.
The second study shows the stochastic momentum indicators continue to trend higher, although the over-bought region of the chart has yet to be reached (above 80%) suggesting that a further move may be possible.
The third study highlights the spreads between consecutive futures, with the nearby Dec/March spread closing unchanged at minus 13 3/4 cents (blue line, March trading over the December). This spread has narrowed from minus 18 cents on Aug. 3 and the uptrend on the spread chart remains intact. This is exactly 1 cent narrower than the closing spread on Sept. 30 a year ago of minus 14 3/4 cents, despite global fundamentals that are suggested to be more bearish than last year.
Last of all, not shown, is a DTN chart comparing the National Average Basis in the U.S. (the difference between the nearby future and DTN's National Spring Wheat Index). The National Average Basis is reported at 46 cents under the December future, which is 3 cents stronger or narrower than the five-year average for this time. This is despite ample quantity of quality wheat reported in the U.S., with the average grade being a 1 Dark Northern Spring, with average protein reported at 14.2%.
Canadian basis also continues to firm, aided by weakness in the Canadian dollar. Tuesday's average prairie basis for CWRS wheat, based on available internet bids, was calculated at $1.11/bu over the December, having narrowed from $.82/bu over on Sept. 1. Canadian producers have benefit not only from the move in futures but also a favorable move in basis.
It is interesting that this move is 1) taking place during harvest and 2) during a time when global fundamentals are portrayed as challenging for wheat.
Cliff Jamieson can be reached at email@example.com
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