CNS Canada — U.S. wheat futures hit contract lows over the past week, before seeing a short-covering correction in recent days. However, with ample world supplies and poor export demand, the path of least resistance likely remains lower, according to market participants.
The fundamentals are pretty bearish for wheat, but the market structure is looking more bullish, with a lot of managed money already on the short side, said Adam Knosalla, a broker with Frontier Futures in Minneapolis.
“It feels like nobody wants to push it too much lower ahead of the (USDA) report next week,” he said of the late week strength in wheat. The U.S. Department of Agriculture will release a number of reports on Tuesday, including U.S. quarterly stocks and the winter wheat seeded acreage.
However, while participants were covering shorts ahead of the reports, Knosalla expected the downward slide would continue after the USDA data.
“Unless something somewhere in the world changes… there’s not much to be bullish about, other than hoping for a short-covering rally,” he said.
“Rallies (in wheat) will be limited by large supplies and poor U.S. exports,” added Terry Reilly of Futures International in Chicago.
CBOT March wheat hit a contract low of US$4.56 per bushel on Monday, but was about 20 cents above that support level by Friday. However, with the fundamentals still relatively bearish, both analysts were of the opinion that new contract lows were more likely than a prolonged short-covering bounce.
“We have more downside momentum,” said Reilly, adding that “wheat could still take another 25 to 30 cents out of the market.”
Knosalla noted that while all three U.S. wheat markets are seeing similar activity, any surprises in the winter wheat seedings numbers out Tuesday could lead to some divergence.
Spring weather conditions in the Northern Hemisphere could also provide the catalyst for some fundamental strength in wheat, he said, if any problems materialize.
— Phil Franz-Warkentin writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting. Follow CNS Canada at @CNSCanada on Twitter.