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Commentary
Wheat prices led by the Spring Minneapolis contract rallied this morning on the idea that we may see slower flow out of Canada, due to the 25% tariffs set to start at Midnight tonight against Canada. However, for Ag related products the month-long extension of potential tariffs against Mexico that have been kicked 30 days down the road was seen as a positive in the grain sector in my opinion. Mexico is our number corn buyer, a top three wheat buyer and a top three pork buyer to name a few. They are an important trading partner with the fear being will Mexico retaliate by putting notable tariffs on the Ag commodities that it imports. Mexico is a consistent 3 million metric tons for the US in exports. Mexico has made all its buys for the current season with 2.3 million shipped of the 3.3 million purchased Those fears have been abated as Trump and the Mexican President opted for a 30 day cease fire on trade after a phone call. I want to focus on funds as they remain heavily short wheat. I think we could get a fund short covering rally amid the confusion and uncertainty. The January 28th Commitments of Traders report showed Chicago Wheat managed money traders were net short 110,782 contracts after increasing their already short position by 18,990 contracts. The same report showed KC Wheat Managed Money traders net sold 7,255 contracts and are now net short 42,386 contracts. The latest CFTC data cites the position of these funds from last Tuesday, so the numbers maybe a little overstated given the rally late last week. Russian wheat values were unchanged today vs Friday, but the focus was all on tariffs and latest headlines. Markets were entertaining today to say the least with headline risk back in full swing and the price action did not disappoint. The wheat complex was able to shake off both Friday’s losses and weakness in the overnight session to close higher across the board. The confirmation of tariffs over the weekend sent markets reeling initially but then headlines that tariffs were pushed off a month for Mexico sent values ripping back higher. We have known since Trump’s previous administration that the tariffs are primarily used as a bargaining chip and while most view them as a needed measure to protect the US, it looks like they are certainly working to bring the nations affected to the table to address the issues raised by the US. Ignore the fundamentals amid the uncertainty and trade the charts. Key resistance for Chicago is the 50-week moving average at 571. Above here and it’s the 5% higher on year market at 582 and key trendline resistance at 5.84. A close above these levels and we are at 5.99/6.02. Support is the 21-week moving average at 558 and trendline support at 554. A close below here and the Sunday night low at 550 and its katy bar the door to 528, then 519.
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Sean Lusk
Vice President Commercial Hedging Division
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