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Rain, Snow, and Cold not What HRW Needs as it Begin to Head

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July wheat traded in a narrow 3 1/4 cent range overnight in moderate volume. The open interest in Chicago wheat went down 17,053 contracts yesterday with short covering, the KC wheat market saw open interest down 9,662 contracts also with short covering action. EU soft wheat production is forecasted to rise 5.9% to 143.8 million tonnes from 135.8 million last year according to Strategie Grains. They also stated that France and Spain need rains but the crop is still in good condition and the situation is not critical. French soft wheat production is estimated at 9.7 to 10.0 million tonnes well above last year’s flood affected 5.3 million tonnes. They raised EU exports to 26.2 million tonnes in 2017-18 from 23.5 last year. Russia’s wheat crop could fall to 67.1 million tonnes down 8.5% from last year’s record 73.3 million tonnes according to ProZerno. Tunisia seeks 67,000 tonnes of soft wheat with the lowest offer coming in at $173.85 per tonne from Europe markets. July wheat turned in a bullish outside day higher close from new contract low of 416 yesterday.

Traders are finally starting to give the extreme wet and potentially cold weather later this week and into the weekend some respect. The Kansas City July contract also put in an outside day higher and Minneapolis wheat closed 13 cents higher yesterday. With rains of 7 to 10 inches forecast in Missouri, Arkansas, and Southern Illinois, there are concerns of disease in the soft red wheat crop. Also, with the hard red wheat crop heading in 40% or more of the crop this weekend, the potential of below freezing temperatures in Texas and Kansas this weekend could be a significant market mover. The spring wheat market is also reacting to snow and wet forecasts in the Canadian Prairies with spring wheat and canola plantings still being delayed, some areas in Alberta are still trying to get last year’s crop harvested prior to seeding this year’s crop. The renewed weather concerns could spark short covering from the managed money traders who are net short 142,126 contracts in Chicago and 15,245 contracts in Kansas City.

TODAY’S MARKET IDEAS: With the market only 12 cents off of the contract lows, follow through strength is needed to continue to get the attention of the trend following shorts. The first moving average that comes into play is the 100 day at 446 3/4. Beyond that is the 50 day moving average at 448 1/2 and the 200 day moving average at 454 1/2. The relative strength index has turned up and the slow stochastics are ready to turn up from oversold levels. Traders could look to buy 1 July 440 call and sell 1 July 420 put at even money. Look for a bounce back up to the 450 area to exit strategy. Close-in support is at 420 1/2 with resistance at 433 1/2 followed by 438.

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