Canada Markets

Weather remains the key as the excessive rains in the winter wheat growing areas of the U.S., combined with cold conditions and snow in a large area of the hard red spring wheat growing area of the continent, has resulted in noncommercial or investor activity which has driven futures prices higher across all three classes of wheat.

After reaching a contract low of $5.47 1/4 per bushel low on May 5, the new-crop December hard red spring wheat contract has rebounded 9.6% to today's $6/bu close, the highest level seen since April 10. While the old-crop July contract failed to hold gains above the contract's 100-day moving average this session, the new-crop December contract closed above this resistance for the first time since January after failing to hold gains above this resistance on April 2-6.

Price has recovered to a test of the 38.2% retracement of the move from December high to the May low, found at $6.04 1/4/bu, after failing to hold gains above this level during this session's trade. A move above this level could suggest a further move to the 50% retracement of the same downtrend, found at $6.22/bu. Further resistance may also be found from a series of weekly highs from late March to early April, ranging from $6.20/bu to $6.25/bu. In addition, the down-trend line (blue line)drawn from the May 5 2014 high shows further trend line resistance at $6.26/bu.

Despite the erratic weather hitting the wheat growing areas of the continent, commercial traders were sellers in today's new-crop trade, with carry in the Dec/March spread increasing 1/2 cent this session to 13 1/2 cents, shown on the attached chart on the lower study which has remained mostly steady over time. The commercial trade has yet to be rattled by the weather challenges, which points to growing investor nervousness behind the recent move.

The third study indicates the premium for December HRS over December HRW, a proxy for the demand for higher quality protein supplies. Today's close at 19 3/4 cents (HRS over HRW) is testing trend line support since strengthening from a low of minus 18 1/4 cents in mid-December (HRS trading below HRW) and reaching a weekly high of 33 cents on May 4 (HRS over HRW). At present, this spread is struggling to hold above trend line support, although strengthened 1/4 cent this session. Given weather issues hitting spring and winter crops, relationships remain in question as commercial traders exercise caution.

The U.S. released its weekly Crop Progress report today, with the U.S. winter wheat crop Good to Excellent crop rating bumped 1% higher for the third consecutive week to 45%, well above the 29% reported one year ago. A total of 94% of the U.S. spring wheat crop is estimated to be planted, well above the five-year average of 65%. The percentage of the crop emerged is rated at 67%, up from the five-year average of 38%, while the first condition rating pegged the crop at 65% Good to Excellent. North Dakota's initial rating is the highest at 72% Good to Excellent, while Montana follows at 64% Good to Excellent as of May 17.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

(ES)

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