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Commentary
All three wheat classes saw a decent amount of short covering in the last three weeks as wheat plays catch vs corn up the page. We finally hit a wall last Friday, as prices in the deferred contracts traded deep into the 6 handles in July and September futures contracts. We ventured into areas where previous rallies went to die as buying ran dry while selling emerged. Weather amid a lack of moisture in the Black Sea and Western US wheat belt prodded fund managers to book profits as Black Sea cash markets get a small boost while production and exports are lowered from the World’s number one exporter. Today, Russia’s IKAR, (their USDA), lowered exports just a half million to 43 million metric tons, (MMT) which is a just a mere drop in the bucket, that said, last year’s exports were 57 (MMT) a sizable decrease year on year. Markets will be watching these estimates carefully going forward for potential shake-ups in the flow of global exports. Global demand still is not great, but any further reductions out of Russia should help support global cash markets. As with all things, it is not a problem until it is, but as forecasts remain predominantly dry, spring rainfall will again be a key determinant in what kind of exportable surplus is seen out of Russia. They lowered production from 84 mmt to 82 mmt. The USDA is at 81.5 currently. We have ample supplies of US wheat domestically. Tomorrow we will get another look at ending stocks. For wheat the average trade guess is 799 million, up a whopping one million from last month. The range is from 785 on the low to 823 on the high. Funds remain with an aggressive short in Chicago of 85K futures and options short while short another 34K in Kansas City. Lots of uncertainties here given upcoming weather, effects of potential tariffs, and a potential cease fire in Ukraine with Russia. Caution is warranted amid the uncertainties and in my view trading the charts with discipline or using cheap options makes sense if I was wading into wheat. Weekly KC wheat attached. Key support is 587. That is the 5% higher on year marker and the 50-week moving average. That level has to hold or its 570 to 567 next. Resistance is the Bollinger band at 6.08 and then 10% higher for year at 6.15. A close above 6.15 and this market could breakout to the 100-week moving average at 6.56.
Trade Idea
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Risk/Reward
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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