Grain Spreads

Sean LuskGeneral Commentary

Wheat/Corn

Corn continues to gain on wheat as wheat’s short-lived gains this week were eroded throughout Tuesday’s session. All wheat classes have not seen any follow through buying from the early March rally as profit taking has ensued as corn has held steady. State by state crop ratings that continue to disappoint. The outlook comes as winter wheat crops are emerging from winter dormancy, raising the importance of growing conditions. US Department of Agriculture briefings overnight highlighted the impact of weather on winter wheat crop health, showing a further deterioration in the reading for Kansas, the top growing state, and a producer of hard red winter wheat. The proportion of Kansas wheat rated good or excellent as of Sunday was, at 12%, down 1 point week on week, and at by far the lowest level for mid-March on readily available data going back to 2007. For Oklahoma, the reading rose by 1 point week on week but, at 7%, remained historically low, as the state received little to no rainfall over the past week to follow-up on some precipitation the week before. In Texas, the reading was, at 13%, also weak, up 3 points week on week. Further out forecasts in the 6 to 10 and 11 to 15 day are still without rain in these winter wheat-producing states which makes these pullbacks good buying opportunities should conditions not get better in my opinion. Those looking at inter or intra market spreads should use either outright Chicago or KC basis May futures contracts as their trigger to buy  wheat vs corn or buy KC wheat and sell Minneapolis. Lets look at a couple trades to consider.

If Chicago wheat futures holds the 200 day moving average at 483, look to buy Chicago wheat vs corn at 91 cents wheat over. Risk eight cents from entry and look to catch a move to 1.16 over.

If May KC wheat holds 513, or closes above 525 later in the week, consider both of these futures spreads:

Buy KC wheat vs Corn at 1.22 over and risk seven cents from entry on a stop-loss. I’m looking for this market to challenge 1.47 over if KC wheat can hold support. I especially like both over corn into the month end crop report due to corn being over bought technically.

Buy KC wheat vs Minneapolis. Last week we suggested the opposite here buying Minn and selling KC at 85 cents over. today this spread hit our target at 1.06 Minn over. Look to reverse here and sell Minneapolis vs KC if outright May holds the aforementioned support levels. Sell this spread at 109.4, with a target at 86 cents Minn over KC. Stop loss at 1.21 , a 12 cent risk.

Call me with questions or comments and always use stop-loss protections on these spreads. I would only enter in long wheat vs corn if key support for wheat holds. There could be another weather premium built on further deterioration even though the poor condition ratings have been priced into the market. I can be reached at 888 391 7894 or email me at slusk@walshtrading.com

I hold a weekly webinar each Thursday at 3 pm central time. Sign up is free and a recording link will be sent your email.

Sign Up Now