Canada Markets

European Wheat Market Showing Strength

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The September Paris milling wheat contract gained 14.50 Euros, or 9.1%, this week, reaching a 24-week high while breaking technical resistance. Weekly stochastic momentum indicators (first study) continue to point higher, while spreads have narrowed (second study) with the September contract closing at par with the December contract. The lower study shows European milling wheat strengthening relative to Chicago SRW to its weakest level in almost two years. (DTN graphic by Nick Scalise)

In a world of seemingly endless bearish wheat data being released, one market is perhaps signaling "Not so fast!" Whether the September Euronext Paris milling wheat close Friday and over the week has provided support to North American markets remains to be seen, but may bear watching.

As seen on the attached weekly chart, the Paris Milling wheat future gained 14.50 Euros this week, the largest weekly gain seen in the life of the September contract. In the process, this future reached a 24-week high while breaching the resistance of the 38.2% retracement of the move from the contract high to the July 1 low. A continued move higher could lead to a further more to the 50% retracement level of E179.38/mt. The first study points to stochastic momentum indicators trending sharply higher, while showing that a further move could take place prior to reaching overbought territory above 80.

While not seen on this chart, the daily chart shows the move in the past two days punching through the resistance of the 50-day moving average, the 100-day and the 200-day, while achieving the first close above the 200-day since November 26 2015.

Unlike U.S. futures where futures spreads showed weakness over the week, a sign of growing commercial bearishness, the second study shows the September contract trading at even money to the December contract, although the ProphetX closing data actually shows the September closing at E174 as compared to the December's E173.75 which signals a bullish inverted close. This spread reached its weakest point in late April at minus $7 (December trading above the September).

The lower study highlights the diverging prices in the European market relative to the Chicago SRW market. This spread is shown at US$35.29/metric ton (Paris over Chicago), which is the weakest spread seen since August 2014. Since August 1, 2015, or the start of the Canadian crop year, this spread has averaged $10.37/mt.

Dow Jones reports that French agriculture agency FranceAgriMer has downgraded that country's winter soft-wheat crop to 42% good to excellent as of July 18, down 7 percentage points from the previous week. European analyst Agritel reported Friday that the early French harvest is pointing to "disastrous" yields after weeks of excessive rains. While the trend in crop ratings over this summer is not available, the French crop was rated at 79% good or very good for the week ending June 6. Some areas of France reported the most rainfall since 1959 in the month of May.

Dow Jones also reported the notion of a pending test of the Euronext futures contract Friday. Given an expected lack of quality in the country's harvest, it is expected that buyers will attempt to access needed quality stocks by standing for delivery. This can potentially lead to complications given that "Euronext's small network of delivery silos is prone to snarl-ups, causing frustration for traders trying to take delivery."

DTN 360 Poll

This week's poll asks whether you think Canada's railways are prepared to move what could be a much larger prairie crop than produced in 2015. You can weigh in with your thoughts on DTN's weekly poll, found at the lower-right of your DTN Homepage.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

(ES)

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