Canada Markets

Spring Wheat Daily Chart Points to Need for Caution

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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Thursday's move in the March MGEX spring wheat contract was the largest one-day move in 10 sessions, although trade still fell 1/4 cent short of testing the previous week's high. While trendline resistance was broken, drawn from the contract's August high, the move failed to sustain a move above retracement resistance at $5.72/bu. The red line on the lower study shows the March/May spread ending unchanged, a sign of a neutral response on the part of commercial traders. (DTN ProphetX chart)

Traders should exercise caution in current markets given the lack of concrete news or evidence to support a move in any direction, with Thursday's spring wheat trade a good example. Rumors surfaced on Thursday, such as the possibility that the United States has sold wheat to China, as well as the notion that the U.S. may kill tariffs levied on imports for China as a gesture ahead of trade talks. Thursday marked the fourth consecutive week that U.S. sales and shipments data was not released due to the partial government shutdown, which could signal a buy-the-rumor-sell-the-fact mentality when it comes to futures trade.

While both hard red winter and soft red winter contracts realized supportive commercial activity on Thursday, the attached chart shows the March/May spring wheat spread unchanged Thursday, signaling a neutral response on the part of commercial traders, while the speculative trade drove the price to its largest one-day gain of 7 cents seen in 10 days.

The following chart signals show reason for concern:

-- While both HRW and SRW showed bullish, outside day trading bars on their daily chart (trading both higher and lower than Wednesday's trading range), this was not the case for spring wheat.

-- The March contract for all three classes failed to test last week's high.

-- While the March contract cleared retracement resistance at $5.72/bushel, the 61.8% retracement of the move from the contract's December high to December low, price fell back to close at $5.72/bu, not a convincing breach of resistance.

-- The middle study shows stochastic momentum indicators close to entering over-bought territory above 80%, which may lead to a slowing of noncommercial buying interest.

-- Over the course of the week (not shown), the March/May spread has weakened 1/2 cent to minus 4 3/4 cents (May trading over the March), a bearish response on the part of commercial traders this week.

On the positive side, Thursday's move broke trendline resistance drawn from an Aug. 8 high. As well, of the three wheat classes, spring wheat is the only March contract with a gain realized over the first four days of trade of 2 cents.

DTN 360 POLL RESULTS

Last week's poll asks readers what they think will be the number-one ag story in 2019, with a list of seven potential choices provided, including a choice of "I don't know." Results of this unscientific poll were highly concentrated among two of the seven choices.

The top choice selected was choice one, which stated that Canada continues to be caught between the trade tensions of the United States and China, which gathered 40% of the votes. It is interesting that while this issue continues to be problematic for the Canadian government, one can only speculate if this issue has affected trade. Daily commentary from the ICE Exchange as reported by Dow Jones certainly points to concern in the industry that increasing tensions may be leading to reduced canola exports.

The second-most popular choice pointed to concerns that unfavorable weather will lead to planting or harvesting issues and/or lead to major production losses. While it is early in the winter, current AAFC charts show that significant areas of the prairies have received less than 80% of average precipitation in the Nov. 1 through Jan. 16 winter season, while areas that have received less than 60% and even areas receiving less than 40% of average precipitation appear on the AAFC map, which bears watching.

DTN 360 POLL

This week's poll asks what crop you think shows the best chances for a positive return on your farm or in your area. You can weigh in with your thoughts to this poll, which is found at the lower right of your DTN Canada website.

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

Follow him on Twitter @CliffJamieson

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