Grain Spreads: Day Two Short Covering in Wheat

Sean Lusk General Commentary

Commentary

The wheat sector gave the bulls a little hope today with higher closes across the board for the second consecutive session. Rumors that China was in buying some Chicago and/or KC wheat and that attracted short covering from speculators in my view. So far, the buying interest from China has exceeded projections and further confirmed purchases would signal a crop in worst quality potentially (in China) or smaller size than the USDA or other analysts have forecast. US wheat futures continue to be the speculators vehicle of choice, yet Russia is the imported wheat of choice. The significant declines in OI seen yesterday with Chicago down 16K contracts, KC down 5K contracts, and Minneapolis down 1.5K contracts were apparent short covering in my view with the timeframe of usually seeing three days of fund covering in a row. Regardless, the funds also appear to be liquidating short positions at these price levels, just in case this is finally the bottom, although we’ve been here many times before. Keep in mind funds have defended their positions on rallies previously that ended up with wheat trading to new lows. Will that trend stay intact? Chicago wheat needs to take out. 

the 6.04/05 area to trade higher in my view and may need more than a end of month short covering story to do so. A close under 5.52 basis March could send the market to recent lows at 5.40 and all the way down to a gap at 5.08 which occurred in 2020. 

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