Grain Spreads

Sean LuskGeneral Commentary

This is the inaugural grain spread report and it will identify inter-market spreads and calendar spreads going forward. It will also focus on some of the most popular relationships that are traded on the board including oil share, wheat vs corn, old and new crop bean and meal spreads, and other spreads I see opportunity in the near and long-term. Please fell free to contact me regarding anything that you may have interest in as I want this report as interactive as possible. I hold a weekly webinar on the grain and livestock markets every Thursday at 3 pm Central throughout the year and sign up for it is free. A recording link will be sent to your email automatically upon sign up.

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Chicago /KC  Wheat vs Corn

Chicago/KC Wheat vs Minneapolis

After trading down to 61 cents wheat over corn, this spread has rallied 14 cents. Both corn and wheat carry sizable managed money shorts as these funds are short 200 K in corn and 150 K wheat. I believe that wheat can continue to gain on corn with this spread pushing out to 81 and possibly 93 cents Chicago wheat over corn. The bullish argument stems from a lack of moisture in winter wheat belt areas where colder temps without snow cover could increase talk of winter kill. As we inch closer to the January crop report all eyes in the wheat market will be on winter wheat plantings. Last year sowings were at a 109 year low and that record could be in jeopardy as sowings look to be even lower this year. A weather premium being built here is not out of the question in my view as the crop is entered into dormancy. Today Chicago wheat vs corn settled at 72 cents while KC wheat vs corn settled at 72.4. If you’re looking to buy here, resistance sits at 81 and 93 over. I would exit on a weekly close under 65 risking approx, 7 cents per spread. Also of note and perhaps a better opportunity lies selling Minneapolis wheat and buying Chicago or KC. When Minneapolis wheat futures rallied 3.00 in late June, the spread between Minny and Chicago pushed to 230 Minny over Chicago. In early May of 2017 this spread made a low of 67 (Minny over Chicago).This spread has since retraced and closed today at 1.95. I look for a continued tightening here perhaps all the way down to 1.60. To me it’s certainly doable so here is the trade. Sell the March Minneapolis/Chicago wheat spread at 1.96 OB. Objective to cover at 1.60. Put a stop-loss at 2.09.

Old Crop/ New Crop Soybeans

July 18-Nov 18 soybean spreads

This can be one of the most volatile future spreads in the grains and it hasn’t disappointed lately. When beans pushed 10.00 a few weeks ago in early December this spread pushed out to 23 cents July over November. As beans have pushed back to the 960 level basis March, July/Nov has traded down to 10 cents over losing 13 cents in the last few weeks. The 2017 low for this spread is 9 over and new lows look to be here sooner rather than later. This assumes spot bean contracts will make another low on the charts which could push this spread to parity or a small carry. Weather in South America will be the driver here as will bean demand from China. Aggressive buyers can buy at 9 over into the January crop report. Should a weather premium down in South America not erupt and funds build a short position in beans, look to short this spread with a target of 15 under deep into January or early February. Should weather threats emerge though, upside targets come in at 21 and 25 cents July over November. Please contact me with questions. I will be adding more relationships in subsequent reports.