Grain Spreads: KC/Chicago Wheat

Sean Lusk General Commentary Leave a Comment

Commentary

There was some noise in the market regarding the potential damage from severe storms that may have done considerable damage to China’s winter wheat crop. It’s my belief that these storms are a rarity as it relates to size and scope. But apparently the damaging storms cover a broad enough area to possibly impact national production. News out of China says the government is sending teams out to assess the damage, with some local speculation that Chinese imports of quality milling wheat may increase this year.  Remember it was China’s Ag Ministry in Mid-April that announced efforts to address a stripe rust problem with its wheat crop, deeming the disease a “severe situation,” according to a report from industry analysts. Considering the Chinese government is still downplaying its African swine fever problem in my view, it was a startling admonition from the CCP. Trade data released earlier in April showed China imported 2.925 MMT of wheat during the first quarter of 2021, which was more than double last year’s tally.   I attached a KC/Chicago wheat spread. The spread has pushed out to 50 cents KC under last week, with today’s settle at 47.4 cents KC under. The April news story on the rust stripe issue pushed the spread from 51 cents KC under to 20 cents KC under quickly. Then as winter crop ratings got better in hard red winter areas, the spread fell apart again. Looking forward, will lightning strike twice here, with KC gaining off of weather events in China? The US could possibly move up a rung on the ladder in global export for high quality wheat as China is in a trade war with Australia. There may be a possibility here. But I wouldn’t be long KC versus Chicago  on a close under -53 cents. That opens the door for a retest of the 2020 low at 75 cents Kc under Chicago in my opinion. Call or email me with questions. I have some ideas on outright contracts and exploring using option spreads.

All three Wheat classes  finished in the red today. Minneapolis or Spring wheat led the complex lower today and in my view weather was the reason. Spring wheat lost 25 cents on forecasts for significant rain late this week and into the weekend across the southern Canada Prairies. Rainfall of 0.40 to 1.25 inches and local totals approaching 2.00 inches will be possible. Improved topsoil moisture may likely result in improved seed germination, emergence and establishment of many recently planted crops. Rains also have improved soil moisture for winter wheat across the Southern Plains in the past week.

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