The lack of deliveries of soft red wheat this morning could suggest that there is concern over the quality of the 2018/2019 harvest…………………..The CME contract is imperfect in the sense that millers fear receiving the 4 parts per million vomitoxin stocks at a 25 cent discount and not the FDA friendly grade of #2 SRW in order to make the final product which cannot exceed 1 ppm ………………………….It’s my opinion that the end user will be more willing to bypass the delivery mechanism and just increase their bids and work with the warehousemen to ensure that there are low levels of vomitoxin in their purchase……………………In my opinion this suggests that the 26.778 million deliverable bushels in Toledo and 12.048 million bushels in Northwest Ohio as of August 24, 2018 as published by the Registrar’s office on the CME Group will spend the winter there and if fireworks develop and the market needs those stocks it will be when the Great Lakes reopen for shipping in mid March 2019…… This could create a potentially tight scenario for the Chicago contract….Therefore, I suggest buying March 2019 and selling July 2019…This is presently near a 5 cent carry and has the potential to invert……………. By February, the world will have lived through the southern hemisphere harvest and will be monitoring the health of the northern hemisphere crop.
Simply put: The wheat market has tight old crop stocks, historically, and has the potential to rally if more supply side problems occur! Seeding has to go well in the northern hemisphere and the southern hemisphere harvest needs to be good………
Steve Bruce
Walsh Trading
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