Western Barley Futures Seen with Temporary Bottom, Potential for Downside

Strategic Insights -

The Winnipeg Commodity Exchange's Western barley futures have found a temporary bottom, but the path of least resistance still appears to be down, according to industry sources. The recent strength in the commodity was attributed to correcting from oversold conditions rather than fresh bullish fundamentals. Industry representatives expressed concerns about the cattle industry's problems, the abundance of the crop, and the improved conditions for the US corn crop, suggesting a potential decline in barley prices.

Key Takeaways:

  • Western barley futures at the Winnipeg Commodity Exchange have found a temporary bottom, but the path of least resistance is still down.
  • The recent strength in the commodity was associated with correcting from oversold conditions rather than fresh bullish fundamentals.
  • Industry representatives expect a halt in price decline due to farmers' reluctance to deliver barley to line companies, but this is likely to change with the upcoming harvest season.
  • A broker estimates that the October barley contract has the potential to move down to C$110, citing weekly and monthly charts.
  • An early frost in Western Canada would increase feed barley supply and further depress the market.
  • A huge rally in CBOT corn futures would be required to drive barley prices up to the C$140 level, which is based on a 61.2% retracement.
  • Technical resistance in the October barley contract is seen at $130 and $134.

Statistics:

  • The potential downside move in the October barley contract was estimated to reach C$110.
  • The October barley contract has the potential to move down 61.2% to C$110 based on technical analysis.
  • Technical resistance in the October barley contract is at $130 and $134.
  • The Canadian grain industry is facing problems due to the cattle industry's issues and the abundance of the crop.

Sources:

  • Resource News International via COMTEX (http://www.comtexnews.com; August 4, 2004)
  • Multiple industry representatives and sources, including a cash dealer and a broker at the Winnipeg Commodity Exchange, cited in the Resource News International article.