Despite the double-digit move lower seen in the row crops on Monday, wheat futures showed resilience, with late-morning selling leading to losses of 6 to 9 1/2 cents in the nearby July contracts across the three North American wheat markets. The move was led by the two winter wheat contracts, with both hard wheat contracts (HRS and HRW) consolidating within Friday's trading range.
As discussed in a previous Canada Markets blog, the nearby HRS contract continues to defy its normal seasonal trend, even though global fundamentals remain weak with ending stocks of all global wheat expected to reach a new record in 2016/17. DTN's Minneapolis Wheat Five-Year Seasonal Index chart shows that on average over the past five years, prices tend to reach a high in late May only to drift lower into mid-August. The past two weeks have seen prices remain steady on the HRS weekly chart, with the July weekly chart showing a loss of 1 cent the week of June sixth and a gain of 1 1/4 cents during the week of June 13.
The attached chart shows the relationship between the hard red spring contract and the hard red winter contract over time, which is viewed as a proxy for the demand for the higher protein hard red spring wheat. After trading in a descending triangle pattern on the monthly chart from April 2015 through to February 2016, this spread has broken out to the upside to finish at 82 1/2 cents on Monday (HRS over HRW). This brings this month's activity close to a test of resistance on this chart found at 84 cents, which is the June 2013 monthly close which could clear the way to a further move to a 99-cent spread, which is the 61.8% retracement of the move from the September 2011 high to the April 2014 low.
Early HRW harvest sample analysis may be creating some concern, showing an average protein of 10.7% based on 46 samples from Texas and Oklahoma, which compares to the 2015 final average of 12.3%. This analysis is in early stages, with the 46 samples expected to be close to 9% of the total number of samples expected throughout the harvest, while proteins are expected to improve as samples are collected further north.
Cliff Jamieson can be reached at firstname.lastname@example.org
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