Canada Markets

Positive Signals on the HRS Daily Chart

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The September hard red spring wheat contract saw a struggle between buyers and sellers Tuesday, recovering from a fresh contract low only to close higher. Today's activity indicates a bullish outside day trading bar. The lower study is a histogram of the net-short futures position held by noncommercial traders, which saw a swing from a net-long of 746 contracts to a net-short of 3,268 contracts as of June 28 data. (DTN graphic by Scott R Kemper)

The September daily hard red spring contract showed an interesting turn of events Tuesday, after a long weekend that saw Canadians on holidays Friday for Canada Day and U.S. markets closed Monday for the Fourth of July celebration.

On Friday, the nearby September HRS contract dipped below the psychological $5.00 level to reach a fresh contract low of $4.99 1/4/bushel, only to come back to close at $5.00/bu. Tuesday's trade saw heavy selling at the 8:30 a.m. CDT open, along with similar selling in the row crops which saw both the November soybean contract and the September corn contract gap lower.

Unlike the row crop markets, all three wheat markets retraced their steps to close in positive territory, led by the HRS market. The September HRS lost as much as 6 1/4 cents due to noncommercial selling when the baton was passed to commercial traders who pushed prices past Friday's close to finish 8 1/4 cents higher at $5.08 1/4/bu. As seen on the attached chart, today's trade resulted in a bullish, outside-day trading bar, which could signal the end of the short-term downtrend which began June 8 at a high of $5.65 3/4/bu.

Today's move came despite a higher U.S. dollar trade, bearish seasonal tendencies which indicate price normally moves lower into mid-August, significant losses in row crops and bearish global fundamentals. The June USDA report shows an expectation for global ending stocks to grow significantly in the upcoming 2016/17 crop year. As well, Bloomberg reported today that the Black Sea countries of Russia, Ukraine and Kazakhstan may have exported 80 million metric tons of all grain in 2015/16, of which 45 mmt is wheat, according to a Russian analyst UkrAgroConsult. This compares to the estimated 75.4 mmt of all grains that will be shipped by the U.S. If the estimates prove correct, this would be the first time this area of the world has achieved an export volume greater than that of the U.S.

The lower study of the attached chart is a histogram of the net-position in HRS futures held by noncommercial traders or investors. As of the June 21 CFTC report, investors held a bullish net-long position of 746 contracts, the first net-long held in four weeks. Investors had a sudden change of heart, as one week later they held a net-short of 3,268 contracts, the largest net-short held since early March. This group may be growing nervous as prices near long-term support levels on the continuous active chart. Chart support (not shown) may be found at daily lows from 2016 ranging from $4.82 1/4 to $4.85 1/4/bu. Looking back further, a similar range of between $4.77/bu and $4.84 1/2/bu, reached between September 2009 and June 2010, may further limit a downside move.

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

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