Canada Markets

New Crop HRS May Struggle to Sustain a Rally

By Cliff Jamieson , Canadian Grains Analyst
The December hard red spring wheat daily chart shows prices reaching a double-bottom contract-low last week of $5.18/bu and has since bounced higher, including a 2 3/4-cent mover higher in Monday's trade. Monday's move saw the price fall back from session highs, while the second study shows that momentum in the short-term uptrend may be stalling. The lower study shows the Dec/March spread weakening by 1 cent today to minus 14 1/2 cents, a growing sign of bearishness. (DTN graphic by Anthony Greder)

While some of the new-crop estimates are forecasting a smaller global crop produced in 2016, the record global carryout from 2015/16 is expected to continue to weigh heavily on markets next crop year.

December hard red spring wheat showed signs of bottoming in last week's trade, reaching a double-bottom of $5.18 per bushel in both Tuesday and Wednesday trade, bringing to an end a downtrend which started with a $5.95 1/2/bu. high reached Oct. 7. Since then, a four-session rally saw a move through resistance at the contract's 20-day moving average (brown line) and 50-day moving average (blue line).

Monday's trade also saw a price gap 1 cent higher at the open in the December contract, a bullish signal, largely driven by nervous noncommercial buying interest, with concerns of warm and dry conditions affecting the hard red winter wheat crop in western regions of the U.S. Southern Plains. This move follows a bullish outside week trading bar printed last week on the weekly chart (not shown) with last week's high and low trading both higher and lower than the previous week while new-crop December HRS finished higher for the week.

While today's move reached a six-week high, today's trade suggested that the continued move higher is not a sure thing. Along with corn and soybeans, HRS prices fell back to end the session near the lower-end of today's trading range. The December ended 2 3/4 cents higher, after trading as much as 9 cents higher earlier in the session. Late-session selling also filled the bullish gap created earlier in the session.

Another concern is the new-crop December/March spread, which weakened from Friday's spread of minus 13 1/2 cents to minus 14 1/2 cents today, while breaking a short-term uptrend on the spread chart, a sign of commercial selling. Despite a smaller U.S. wheat crop expected in 2016, this spread is the widest it has been for this date over the past five years. On March 6 2015, this spread was minus 12 cents, while the five-year average is minus 5 1/2 cents, signaling a bearish approach by commercial traders.

Potential technical support lies at the 50-day moving average at $5.32 1/2/bu., while potential nearby resistance lies at $5.43 1/2/bu., the 33% retracement of the move from the Oct. 7 high of $5.95 1/2/bu. to the March low of $5.18/bu.

A quick look at 1 CWRS 13.5% protein bids across the Prairies on pdqinfo.ca shows October delivery bids ranging from a high across the Prairies of $236.32/mt ($6.43/bu.) in Southern Alberta, to a low of $221.85/mt ($6.04/bu.) in North-east Saskatchewan. Recent Canadian dollar strength which saw the loonie reach a high of $.7540 CAD/UD today continues to weaken prairie basis levels and weigh on cash bids.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

(ES)

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