Canada Markets

July Spring Wheat Reaches a Five-Week High

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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July spring wheat gained 19 1/4 cents this week, the contract's largest weekly increase, reaching a five-week high and tested resistance at $5.58/bu. The July/Sept, Sept/Dec and Dec/March (missing) futures spreads all strengthened (narrowed) this week, signaling supportive commercial activity. The lower-study shows noncommercial traders reducing their net-short futures position over the past two weeks. (DTN graphic by Nick Scalise)

July spring wheat's weekly move was a close second to that seen by new-crop July hard red winter wheat, gaining 19 1/4 cents as compared to the 20-cent gain by HRW. Uncooperative weather on both sides of the border has slowed progress when it comes to spring fieldwork and seeding, while areas of the winter wheat growing area have seen freezing temperatures and snow and the forecast for the weekend shows other winter wheat growing areas will be dealt a significant amount of rainfall.

This week's move in the July is perhaps not an extremely bullish move, from a technical standpoint. First, the weekly trading bar fell short of reaching a bullish outside bar on the weekly chart. In order to do so, the July price would have to trade below the prior week's low, while this week's low instead equaled last week's low, rebounding from the $5.30 1/4 level.

Secondly, this week's high moved above the 61.8% retracement of the move from the contract's February high to April low at $5.55 1/4, reaching the 67% retracement of the same downtrend at $5.58/bu, but stalled at this level, while ending the week below both levels of retracement resistance.

Lastly, as seen by the weekly stochastic indicators on the second study, the crossover was see above the 20% level in neutral territory, which points to a change in direction but the most bullish of crossovers are seen in the over-sold region of the chart below 20%.

On a more positive note, both commercial and noncommercial traders supported this move, which could lead to a further test of resistance next week. The third study shows all spreads strengthening or narrowing, a sign of supportive commercial activity in all positions. As well, Friday's CFTC data shows noncommercial traders holding a net-short position as of Tuesday April 25, although their bearishness was short-lived and they have reduced this position in each of the past two weeks and have likely continued to cover this short over the balance of this week, as they grow increasingly nervous.

Canadian producers have also benefit from the weaker loonie trade over the week, which has reached 14-month lows against its U.S. counterpart. The average Prairie CWRS basis was calculated at $.97 over the July for spot delivery, based on accessible internet bids, while up $.15 over the course of the month. This is the strongest basis calculated since the end of December and compares to the $.75 calculated this time last year.

This week's International Grains Council's estimates suggest that 2017/18 could be a carbon copy of the current crop year, with just a one million metric ton reduction in ending stocks forecast over the upcoming year, with ending stocks/use expected to improve only slightly to a bearish 32.4%. The USDA will release their first look at the upcoming crop year in early May. Despite the crop forecasts released, weather will be the key and the market will tell us where we go from here.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

(CZ)

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