U.S. wheat futures consolidate, but more strength possible

CNS Canada — U.S. wheat futures have run into some resistance after posting solid gains recently, and could see some more consolidation in the short term. However, there are still a number of supportive factors at play in the wheat market, according to an analyst.

“The rally has really slowed down, and we’ve reversed from last week’s high,” said Austin Damiani of Frontier Futures in Minneapolis.

The CBOT (Chicago Board of Trade) December wheat contract climbed by over 40 cents per bushel during the week of Nov. 10-14 and hit a session high of $5.645 per bushel on Friday (all figures US$). The contract has since backed away from that high, and settled at US$5.49 per bushel on Tuesday.

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Minneapolis and Kansas City wheat contracts saw similar price activity, with Minneapolis December wheat quoted Tuesday at US$5.785, about 11 cents off its highs. The Kansas City hard red winter wheat contract, now traded in Chicago, was quoted at US$5.935 on Tuesday.

Damiani said the initial rally was tied to fund short-covering, with speculative money flow a feature. He said consolidation was likely in the short term, and noted it will now be interesting to see how much was covered in the next commitment-of-traders report at the end of the week.

Another factor to watch in wheat futures is the fact that the calendar spreads have narrowed in, with the carrying charges shrinking.

“The fact that the spread has tightened in both Kansas City and Chicago has facilitated the fund short-covering,” said Damiani. The shorts like to capture the carry when they roll their positions forward, and the absence of that carry creates an incentive to exit.

Cash levels are strong, with basis levels above the futures in the country, said Damiani, pointing to another supportive factor in the wheat market.

“From a balance sheet perspective, nothing is particularly robust compared to other years,” but there is a lack of deliverable quality stocks, which is a positive fundamental influence on the wheat market, said Damiani.

The carry between December and March spring wheat in Minneapolis has also narrowed in, which is also supportive for that market. Spring wheat cash bids are also strong, he added, with North American exports running ahead of the year-ago pace.

“Spring wheat is in a stronger position fundamentally,” and is also looking relatively cheap compared to the other wheat classes, which should provide some relative support for the Minneapolis futures going forward, Damiani added.

— Phil Franz-Warkentin writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

 

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Phil Franz-Warkentin writes for MarketsFarm specializing in grain and commodity market reporting.

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