Canada Markets

Wheat Markets Diverge, it's all about Quality

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The long-term continuous active spring wheat monthly chart shows the third consecutive higher monthly close, while the November bar shows a bullish outside month trading bar, reaching a greater high than the previous four months. The stochastic momentum indicators (middle study) point higher and show the potential for a further move prior to reaching overbought territory. The lower study shows the HRS/HRW spread reaching $1.24 1/4/bu., the highest level since March 2012. (DTN graphic by Nick Scalise)

With Monday being the last day of trade for November, we see that weak global fundamentals for wheat have weighed heavily on the winter wheat markets, with the March soft red winter contract losing 31 cents/bushel over the course of November, while the March Kansas City hard red winter contract finished 22 1/4 cents/bu. lower. Both the March SRW contract and the March HRW contract reached a fresh low on their respective March monthly charts.

At the same time, March Minneapolis hard red spring wheat trade has bucked the trend of the winter wheat futures, ending modestly higher for the month and is the third consecutive higher monthly close. The March contract gained 1 cent in November, after a 12 1/2-cent gain in October and a 30 1/4-cent gain in September. This is despite an approximate 3% move higher in the United States dollar index over November, while DTN's Five-Year Seasonal Index shows that prices on average over the past five years tend to drift lower from late October to late February.

The attached graphic shows a longer-term perspective given the continuous active chart. November trade resulted in a bullish outside trading bar this month, trading both higher and lower than the October bar while closing higher. As well, after three consecutive higher monthly closes, this month's high reached a five-month high, also a bullish sign. Using a spin on the simplistic four-week rule which was developed close to 50 years ago, traders would go long (buy) when price exceeds the high of the past four weeks or months and traders would go short (sell) when prices fall below the lowest point in the previous four weeks or months.

In his book Technical Analysis of the Futures Markets, author John J. Murphy discusses the benefits of charting on long-term monthly or continuation charts, stating "the most striking features of long-range charts is that not only are trends very clearly defined, but that long range trends often last for years." One can only hope.

Given the continuation chart attached, the next level of resistance on the chart is seen at monthly highs reached in April and June, ranging from $5.57/bu. to $5.60 1/4/bu.

The lower-study may contain the key for this move, with the continuous active spread between hard red spring wheat and hard red winter wheat futures, used as a proxy for the demand for protein, closing at $1.24 1/4 cents (HRS over HRW) the highest level reached since March 2012. The spread between DTN's National Spring Wheat Index and National Hard Red Winter Wheat Index was reported at $1.89/bu. Tuesday and will be higher today, the highest level reached since November 2011. This growing interest in protein is also seen in Portland rail car bids for dark northern spring wheat. Today's USDA reports show the premium paid for No. 1 DNS, minimum 300 falling number and maximum .5 ppm vomitoxin moving from 13% to 14% protein based on the mid-point of the range of bids at 56 cents USD (32), 30 cents for 14% to 15% (16) and 30 cents from 15% to 16% (13), with Aug. 1 premiums in brackets.

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DTN 360 Poll

This week's poll asks what you think we can look forward to in row-crop prices (soybeans and corn) over the balance of the crop year. We encourage you to share your thoughts on this poll, found at the lower-right side of your DTN Home Page.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

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