Grain Spreads: Inter Market Wheat Spreads

Sean LuskGeneral Commentary

Commentary

KC wheat futures had rallied approximately $1.83 from the early May lows to the spike right before the grain corridor extension last Wednesday. Today, July KC wheat closed at 8.25 which is a 50 percent retracement from the monthly high/low. Russia continues to complain but finally agreed to the extension of the grain agreement last week. The clock restarts for another 60 days and I expect to see the usual drama leading up the July deadline. US values continue to dissuade competitive exports with US HRW (KC Wheat) $120/mt over Russian FOB. This is the issue in my view. There is no significant demand for US origin. Despite poor crop quality that has the US importing high protein wheat, demand remains nonexistent. Another shipment of about 30,000 MT of European Union origin wheat, believed to be from Poland, is expected to be shipped to the U.S. in June or July. This follows two previous shipments of Polish wheat to the U.S. – one of about 31,000 MT shipped in April and another of about 32,000 MT shipped in January both to Tampa, Florida. The price of Russian wheat with 12.5% protein content, delivered free on board (FOB) from the Black Sea in June, was $242 per metric ton, down $6 from the previous week, IKAR agriculture consultancy said.

 Rains forecast for the western Southern Plains over the next 10 days which could aid some of the US crop. The Wheat Quality Council tour of Kansas put the state at 30 bushels per/acre vs 45.6 bushels/acre average. However, wheat is grown on quality not quantity. Therefore, not much demand for lower protein varieties, of which the US has an abundance. It’s a big reason why KC traded to a record vs Chicago. The inter market wheat spreads have also seen significant pullbacks as KC wheat versus Chicago wheat hit a record at $2.75 KC over last week. Today it closed at $2.19.  July KC wheat last week also traded a high of $3.45 over July corn but closed today at $2.54. The unwinding of these spreads has pressured KC wheat in my opinion. Technical levels to watch in July KC come in as follows. Support is 8.00. A close below and its katy bar the door to 7.61 and 7.56. A close below here and its 7.22, which represent 20% down for the year. To turn bullish in my view, the market needs to close over 3 levels. Resistance is at 8.31, 8.37, and 8.44. A close over 8.44 could send the market back up to 8.78, 888, and 892. A close over 8.92 this week and the market likely challenges 9.32 in my opinion. 

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