Spring wheat futures nearing major support

Spring wheat futures at the Minneapolis Grain Exchange have been in a steady downtrend for the past three months, and are currently holding just above major support.

Further losses are possible, although values are likely nearing a point that will encourage more export demand, said an analyst.

Looking at a monthly chart, the nearby Minneapolis futures have not traded below US$7 per bushel since October 2010. After losing about US$1.20 per bushel since the beginning of June, the most active December contract is very close to that psychological point, having hit a low of US$7.0125 earlier this week.

“The $7 level is pretty critical here,” said Austin Damiani of Frontier Futures in Minneapolis, adding that from a chart standpoint “it looks a little scary.” On the long-term charts, he said the next major support doesn’t come in until US$5 per bushel.

However, he didn’t think prices would necessarily go that low, given the fundamentals in the wheat market.

While the market generally anticipates “ample supplies” of spring wheat in North America this year, questions over protein levels could be supportive for the higher protein Minneapolis wheat contracts. In addition, Damiani said the U.S. balance sheet for hard red winter wheat is very tight.

Strong export demand continues to cut into those hard red winter wheat supplies. “The question is, at what point will end users switch from hard red winter wheat to spring wheat?” said Damiani. “I don’t know where we’ll do that… the job of the market will be to incentivize that switch.”

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

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