Grain Spreads

Sean LuskGrains

Soy Complex

Weather fears regarding drought like conditions and its impact on future yields in Argentina drove beans and meal through key resistance levels this week. Beans rallied near 40 cents for the week while soy meal rallied $30.00 a short ton. Bean and meal spreads surged as well this week before some slight back and fill emerged throughout today’s session. If weather forecasts continue to show hotter and drier conditions into month end and the first weeks of March in the Southern Hemisphere, look for this push to continue at some point next week. Argentinean exports 50 percent of the worlds meal and if their bean crop continues to get downgraded, I look for another surge higher across the board in beans and meal into month end. Lets look at July/Nov beans and July/Dec meal.

July /Nov soybeans since mid January has rallied from a 5 cent carry to 25.2 cents over. It needs to hold 18.4 July over, trend line support. Should it close under it can retrace all the way down to the 50 percent retracement of 10 cents July over. It settled today at 20 cents over. Should support hold, upside targets are at 30 cents July over November.

July/Dec soy meal If front month March and May meal contracts settle below 367, look to sell this spread with a target of 7.4 over, the fifty percent retracement level of this latest move higher. We settled today near 15.7 July 18 soy meal over Dec 18. Upside target is 18.5 over and if surpassed 20.5 is the next target to the upside. Support is 11.5  and with a close under 7.4 is next.

Wheat/Corn

Corn vs Chicago and KC wheat was a two-sided trade as Chicago wheat futures lost three cents while KC wheat and corn ended unchanged on the day. We suggested buying a 50 percent retracement of the KC wheat vs Chicago wheat spread basis May 18 futures at 14 cents KC over. The Wednesday low was 14.2 but the spread has since pushed 7 cents to close at 21 cents. Looking at the KC wheat in the near term I see a reluctance in anybody being short due to increases in the drought monitor in the western wheat belt. Given the Presidents Day holiday we don’t open up until Monday night. Perhaps psychology going into a three-day weekend wasn’t to go home short. State by State crop ratings for wheat aren’t released until the 26th, so unless something enters into the market over the weekend, I think this spread can push to new highs with a target of 32  cents KC over Chicago wheat basis May 18. We gave a recommendation last week buying a calendar spread in Minneapolis wheat buying the July 18/Sep 18 spread at a 3 to 5 cent carry. We settled today at 6.4 cents July under so we are down a few cents on the trade. No new recommendations here but we are sticking with the long positions here.

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