Grain Spreads: Funds Pile on Wheat

Sean Lusk General Commentary

Commentary

Managed money continues to press the wheat market lower as every bullish story has been brushed aside. Funds sold another 10K of US Chicago wheat yesterday, which brings the net short to approximately 85K in my view, which is nearly the size of the long in soybeans. This is more than double the short the sector carried 30 days ago. Today saw Chicago wheat trade a mild dead cat bounce of 10 cents before retreating to just above unchanged for the session. US export inspections reinforce the lack of export interest for US wheat. At 200K metric tons this week, the year-to-date volume is 10.5 million metric tons or just 400K metric tons below the same point a year ago. Last year’s inspections were nothing to write home about. Basis levels overseas particularly from Russia and the EU are lower, which in my view leaves US wheat noncompetitive for now. That said there are crop quality issues here and in Argentina, but for now the funds are in control, and given that the grain corridor is wide open in Ukraine for now, funds have added to the short side and have defended their positions on rallies. The recent blackout in Ukraine has 90% of the country now without electricity. Russian missile and drone attacks on critical electric and water infrastructure continues to send the country into darkness as the harsh realities of winter set in. In my opinion the lack of power slows the movement of grain, with some sections of railroad “de-energized” currently. Nearly all of Ukraine’s sea and river ports were forced to suspend work to varying degrees, but grain keeps moving albeit at a slower pace. In summary it seems like this war drags on through winter, which in my view leaves the potential for the pathway to be shutdown at any moment. 

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Sean Lusk

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