Chart analysis and commentary by Harold AGJ Davis
Prairie Crop Charts
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Corn: Breath deeply. We’ve seen this before   The recent sharp drop in CBOT Corn prices is the sort of short term scare that the Corn market is famous for. Note how often prices subsequently reverse and undo the damage. Moreover, Manitoba Corn continues to trade cheap to Chicago, and this Basis is wide enough to absorb some temporary uncertainty without necessarily damaging local prices.   However, Manitoba Corn prices do face challenges. First, although Manitoba Corn is trading at bargain levels well below its 5 and 8 Year Avg Prices, the typical seasonal tendency suggests ongoing price slippage from now until Canadian Thanksgiving. On top of that, despite the recent disconnect between Manitoba prices and Chicago probably caused by the combination of logistical problems and inadequate local demand, Manitoba growers seem to have pushed ahead with aggressive plantings. Thus, a test of long term support around CDN$3.20/bu can not be ruled out in the months ahead.
Wheat [General]
Wheat: Look for a major bottom very soon   At present, Wheat prices continue to drop like they have for the last 8 weeks but the end of this painful sell-off and an upward reversal could be close at hand.   Since late May, we have been highlighting the prospect of an A-B-C correction and this has just about run its course. So, Spring Wheat is looking oversold.   At the same time, in recent years, the typical seasonal tendency has seen MGEX Wheat futures tack on about US$1/bu between Canada Day and the September Labour Day long weekend. Given that Spring Wheat did not behave this way last year, many may have forgotten this underlying behaviour.   Turning to Saskatchewan CWRS average delivered elevator prices, the prospects for improvement are even more dramatic. The Basis has barely improved over the past 5 months, and it is important to remember that current Basis levels near -CDN$2.35/bu are a steep bargain compared to –CDN$0.89/bu at this time last year. That adds extra Recovery potential.
Feed Grains
Feed Grains: Looking expensive to Corn   The recent collapse in Corn futures prices expressed in Canadian dollars has not yet been reflected in Canadian Feed Grain prices, but a sympathetic downward move could unfold soon. At present, the comparative Value Ratios for Feed Peas divided by Corn and Feed Barley divided by Corn are at high levels only experienced a few times in the last 5 years. This suggests that current Prairie Feed Grain prices may not be competitive and could be vulnerable to imported Corn or by-products like DDGs.
Barley [Feed]
Feed Barley: The dead cat bounce suggests caution   The past month’s slow improvement in Alberta Feed Barley prices implies that underlying momentum is faltering. Alberta Barley may have been undercut by lower priced Saskatchewan supplies or it could be less competitive compared to North Dakota Barley and Corn (see Feed Grain Comment dated July 17th). Looking forward, the seasonal tendency typically turns lower from now until October 1st, so average delivered elevator prices could slip lower.   In the long term, Alberta Feed Barley seems to be slowly sorting itself out within bands of support and resistance remarkably similar to its 2008-2010 experience. If so, near term weakness could test the $3/bu level.
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Oats: Minor weakness against a firm backdrop   Manitoba average delivered elevator Oat prices continue to define “normal”. While MB Oats are trading sideways in a lacklustre manner, the long term chart underlines how well they are supported just below current price levels.   CBOT nearby Oat futures expressed in Canadian dollars have broken their downtrend and momentum is rolling sideways. Clearly, the Oats market is slowly returning to normal.   The Manitoba Oats Basis now at –CDN$0.54 is close to its 5 year average at –CDN$0.32, though the Saskatchewan Basis at –CDN$1.41 is lagging its average of –CDN$0.75. Given that SK Oats are already super “cheap” to both MB and futures, the typical  seasonal pressure expected over the next two months could be minor.
Wheat [Durum]
Durum Wheat: Pullbacks typically follow breakouts   Durum’s big breakout above both horizontal overhead resistance and the  long term downtrend generated a typical opening surge. However, at this point it is normal for young bulls to stop and pause for breath before continuing on their way again.   Given Durum’s typical seasonal tendency, such a pullback would hardly be surprising. Moreover, despite Canadian Durum’s comparative giveaway pricing, it is trading at a large premium to CWRS and this might induce some farmer selling too.   Longer term, Canadian Durum prices continue to enjoy generous catch-up potential to US Durum prices while both sides of the border establish the pace of a new bull market.
Wheat [CWRS]
Wheat: Here we go!   The CWRS minus MGEX Basis has just broken above overhead resistance. That is an important development which suggests that the global marketplace has finally spotted our bargain pricing. Expect the bid side of the Canadian Wheat market to improve and prices to start trending upwards.   In terms of leadership, MGEX nearby futures expressed in Canadian dollars are testing this winter’s support level thereby holding out the possibility of some sort of double bottom. Combined with the prospect of more Basis improvement, Saskatchewan average delivered elevator prices for CWRS have a near/medium term series of recovery targets starting at $5.10/bu followed by $5.70 then $6.25.   Looking at a close competitor, average elevator prices for North Dakota Dark Northern Spring are much higher and typically begin to stabilize at this time of year. Saskatchewan CWRS prices should converge upon them.   This change of tone should benefit all classes of Canadian Wheat.
Barley [Malt]
Malting Barley: This bear is getting old   Malting Barley price weakness may continue a little longer, but the seeds of a reversal are already sprouting.   Certainly, the typical seasonal tendency suggests that Malting Barley prices could remain under pressure for another six weeks or so, but prices near their 9 year Average are not going to hold buyers back.   Price leadership often comes from the US, yet North Dakota and Saskatchewan Feed Barley prices are headed in opposite directions. Given the importance of Feed Barley to finishing cattle in this period of high meat prices, Saskatchewan Feed Barley’s recent rally makes a point because rising Feed values always pose a risk to supplies of Malting.   Sure, Corn is cheap and its knock-on importance to Malting Barley can not be understated, but the spread between European MATIF Malting Barley and North Dakota-Montana is the largest since the 2010 bull market. Clearly, the global Malting market is not panicking.   This bear may not have much more to run.
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