Canada Markets

December Spring Wheat Tests Long-Term Resistance

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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December spring wheat met its match, given resistance from a string of weekly highs going back to last August. This week's low failed to close the gap from last week's high, leading to a second consecutive higher weekly close following last week's bullish reversal signal. (DTN ProphetX graphic)

Following last week's bullish reversal signal on the December weekly HRS chart, the December MGEX spring wheat contract reached a high of $6.53 3/4/bushel this week, its highest level seen since November. This week's high tested a range that has acted as resistance seen since the week of Aug. 7, with six previous weekly highs ranging from $6.52/bu. to $6.55 1/2/bu.

A bearish USDA report this week and a bearish turn in winter wheat contracts has led to pressure on prices in the spring wheat market, forcing a December close at the lower-end of this week's 18 cent trading range. Late-session buying interest helped pare Friday's losses to 5 3/4 cents, while still gaining 5 1/4 cents over the week, the second consecutive weekly gain.

Despite concerns over the state of the hard red winter crop in the United States, the new-crop July HRW contract showed a bearish move this week, taking out the support from the bullish gap created in April 9 trade, while closing at its lowest level in seven sessions.

This was not the case with the December spring wheat contract, which failed to close the gap created in April 9 trade, ranging from Friday's high of $6.35 1/2/bu. and Monday's low of $6.37 1/4/bu. Today's trade reached a low of $6.35 3/4/bu., finding technical support at this level and holding within an 18-cent range over the week.

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The attached chart shows supportive commercial buying over the course of the week, as indicated by the narrowing spreads shown on the lower study, with the lower purple line representing the Sept/Dec futures spread, which narrowed 1 1/2 cents this week to minus 9 3/4 cents (Dec trading over the Sept). At the same time, the brown line shows the Dec/March spread narrowing 1 1/4 cents to minus 8 1/2 cents. This has not been the case over the past two days, with the daily chart pointing to bearish commercial selling which has led to these spreads weakening (not shown).

The latest CFTC data as of April 10 points to noncommercial traders increasing their bullish net-long futures position by 83.5% to 2,901 contracts, the largest net-long position held in four weeks. Despite concerns of delayed planting of spring wheat on both sides of the border, it is the speculative trade that is currently holding prices up.

Looking at the attached chart, one concern seen is the upward momentum shown in the first study on the weekly chart. The crossover of indicators took place in the neutral zone of the stochastic chart, between 20% and 80%, and is not an indication of the most bullish turn in momentum.

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

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