Canada Markets

Old-Crop Spring Wheat Prices Eye a Breakout

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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Since Nov. 28, the March hard red spring wheat contract has continuously tested retracement support at $5.42 1/4/bu., while closing above this level for only the second time on Wednesday. Today's high was 1/4 cent short of testing the Dec. 16 high of $5.45 3/4/bushel. A breach of this level could result in a further move to $5.54 3/4/bu. As indicated on the lower-study, the March/May inverse is testing resistance, ending at 4 cents today. (DTN graphic by Nick Scalise)

The March MGEX spring wheat future retraced from the contract's Dec. 16 high of $5.45 3/4/bushel to a low of $5.30/bu. by Dec. 23. Support was found at this level for four consecutive sessions, a level which previously acted as resistance that acted to prevent a move higher through most of November.

Wednesday's 7 cent move higher saw the March contract come back within 1/4 cent of the March 16 high, while closing near the upper-end of today's 8-cent trading range. Today's move represented the seventh time that the contract has closed above its 200-day moving average since Nov. 29, calculated at $5.38/bu., while is only the second time that price has closed above resistance of $5.42 1/4/bu., which is the 50% retracement of the move from the contract's June high to the contract's August low.

Technically, the market seems at a make-or-break point, with the market either moving lower after forming a triple-top on the daily chart in and around $5.45/bu. (Nov. 29, Dec. 16 and Jan. 4), or a breakout above $5.45 3/4/bu. A sustained move above today's resistance at $5.42 1/4/bu. could lead to a further move to $5.54 3/4/bu., the 61.8% retracement of the earlier discussed downtrend. While not shown, the continuous active weekly chart points to previous highs ranging from $5.57/bu. and $5.60 1/4/bu. which is the upper-end of the 60-cent range which has confined trade for more than 17 months on the long-term chart.

While global wheat fundamentals have not changed with 2016/17 on-track for a record carryout, the one bright spot is seen in high quality wheat, which is helping support a move higher for spring wheat during a period when seasonal influences tend to drive prices lower into late February, as seen on DTN's Five-Year Seasonal Index.

USDA reports of railcar bids for dark Northern spring wheat at Portland point to a continued strengthening of bids for higher proteins to access export supplies, which will also indicate the trends seen off Canada's West Coast. Since Aug. 1 or the beginning of the Canadian crop year, the basis for 1 DNS 13% protein has changed little. The mid-point of the range of basis levels reported has weakened 1 1/2 cents USD between Aug. 1 and Jan. 4 to 64 cents over (mid-point of the 40-to-88 cents range over the March future.

The reported spread between 13% and 16% protein wheat, however, has increased substantially since Aug. 1. On the first day of the crop year, the mid-point of the reported range of basis levels pointed to a spread of 61 cents USD from 13% to 16% protein. This spread was reported at $1.16 1/2 on Wednesday, after slipping from $1.26/bu. on Tuesday.

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DTN 360 Poll

This week's question asks what you think is the top Canadian agriculture story of 2016? Please share your thoughts on this week's question, which is found at the lower-right on your DTN Homepage. I encourage you to drop a line to cliff.jamieson@dtn.com to share your thoughts on this subject, with feedback to be compiled for a January piece for the Canada Markets blog.

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

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