CANOLA HEDGE THOUGHTS
Nothing has changed since our last report. As expected, the March 31st USDA planting intentions report was a major market influence and the tight US stocks and modest acreage number for soybeans should keep prices on edge though the early spring. Weather conditions (good or bad) as we approach planting season in the Northern Hemisphere will now be the major factor. Again, predicting these events is impossible. Therefore, producers need to get their hedging plan updated and take advantage of these higher price levels. STAY THE COURSE.
Most producers are securing 10-50% coverage for 2011 canola with many using options to achieve higher coverage without the fixed commitment. The options strategies continue to allow for unbelievable floors in pricing, while allowing the producer to take advantage of even higher price levels.
After rallying last Thursday on the heels of the bullish USDA reports, canola prices have experienced a more two sided trade with some profit-taking by both commercial and speculative traders.
Canola markets have seen a pick-up in hedge selling in the nearby May and July futures while concerns about delays in planting this spring prompted buying in the more deferred months.
Much of the support in canola came from the extremely wet conditions across much of western Canada and the strong likelihood of flooding in the eastern regions of Saskatchewan and in southern Manitoba over the next month. This is clearly an issue that we will need to keep our eye on going forward.
Since posting a recent low at 525.0 on March 18th, the canola market has been moving back higher to the current 591.2 level over the following two weeks.
Last week’s close came above the red line 10 week moving average at 585.0 which turns the near term market trend back higher following the February – March correction.
The 10 week moving average remains key support this week at 585.0. If this support is broken, the near term trend will turn back lower with following support then becoming the blue line 40 week moving average at 530.0.
Upside resistance begins at last week’s 603.4 high followed by the 619.5 high set in February. A breakout over the February high will turn 659.0 into the next longer term upside objective. 659.0 represents the 78% Fibonacci retracement resistance of the 2008 downtrend.
Technical Indicators: Moving Average Alignment – Bullish….RMI Short Term Trend Following Index – Bearish…. RMI Long Term Trend Following Index – Bullish
Little has changed in the last week. The wheat market has rallied mostly in sympathy with soybeans and corn as the USDA report was mostly neutral to bearish. Adverse weather conditions in US and in Russian wheat growing regions have help wheat prices rebound from a two dollar free fall, but producers should take this rally as an opportunity to get hedging plans updated.
Wheat continues to trade a historically high value. Hedging 10-30% of your expected 2011 crop is warranted. Options again provide the best opportunity to set a floor, but benefit in the case of a price recovery later this spring.
MGEX HRSW FUNDAMENTALS
After following Corn and Soybeans higher late last week, wheat prices displayed a more mixed tone in recent days.
Monday afternoon, the USDA reported the first national winter wheat ratings. The winter wheat crop rated only 37% good vs 65% last year. This is the fourth worst national winter wheat rating on this date in 25 years.
The consulting firm, Informa, estimated US hard red winter wheat production at 848 million bushels vs 1019 million last year. Their total winter wheat estimate was at 1496 million vs 1485 million last year.
There is also a very noticeable slowing in the cash markets as demand has slipped due to the rally in the flat price.
These various reports have lead to a choppy two sided market as traders tried to balance the crop condition report against the slowdown in demand in both the domestic and export markets due to the price rally.
MGEX HRSW TECHNICALS
The Minneapolis wheat market has broken out over the red line 10 week moving average in this week’s trade. This breakout is bullish and turns the near term market trend back higher.
The market had been in a downside correction which began at a 10.38 1/2 high posted in mid-February and ended at a 7.97 1/4 spike low set four weeks later.
The ensuing rally back higher the following two weeks stalled last week under the red line 10 week moving average at 9.32. This average has since been broken in this week’s trade which is bullish.
The next upside resistance now becomes 10.00 followed by the 10.38 1/2 February high. A rally over the February high will turn 10.80 which is the top of an open gap area from 2008 into the next upside objective.
The 10 week moving average broken as resistance now becomes the first area of support this week at 9.32. A weekly close back under this moving average will turn the near term trend back lower with following support at the blue line 40 week moving average currently at 8.08.
Look at Minneapolis wheat options or fixed pricing with the wheat board.
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