Grain Spreads: KC Wheat, Enjoy the Ride

Sean LuskGeneral Commentary


A technical bounce came to the wheat contract for no more of a reason than speculators trying to cherry pick a near term low in the market. US winter wheat ratings improved 3 points this week to 34% G/E. Oklahoma’s crop led the lift with an incredible 20-point gain. The complex staged an impressive rebound given the magnitude of the early losses, with July Kc gaining closing 27cents over the daily low. However, with today’s rally being month-end driven possibly, It’s my belief that the trade will need to see some follow through before turning bullish. For the month KWN23 saw a massive $1.83 ½ cent trading range and posted gains of just 14.25 cents with values finishing sub-$8 after trading above $9 mid-month.

Fundamentals point to potential supply side issue becoming friendly for price. Funds still hold a sizable Chicago wheat short of approximately 130K contracts. First, China has been besieged with too much rain impacting new crop wheat harvest. Government funds are now being set aside to help with harvesting and drying the damaged grain, some areas in Henan have seen over 400% of normal rainfall in the last 2 weeks, but the rains have hit the main growing areas of Anhui as well as parts of Shaanxi. There are stories everywhere from losses as much as 20 million metric tons, with China needing to buy 10 million metric tons. The news though is sketchy from there to nobody’s surprise. Pay no attention to what they say but rather what they do. French wheat has been moving into China for weeks, a sign of strong demand for EU origin. 

Secondly, The United Nations are proposing working on the transit of Russian ammonia through Ukraine, in a “mutually beneficial” attempt to save the Black Sea grain deal; they are also looking at opening up more Ukraine ports & cargoes. Good luck with that possibility as I don’t see Russia bowing to those demands for now in my opinion. That said China could intervene here as their wheat harvest problems may pressure Russia to keep the corridor open. Stay tuned for more drama.  Technical levels for July Kc come in as follows through next week. Resistance is at 8.00 and with a close over 8.17. A close over here and its 8.41/8.44. A close over these levels and its back to 882/888. However, a failure at 8.00, could put a retest of 7.64 to 7.56 as a possibility.  A close under and its katy bar the door to 725/722. 

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Sean Lusk

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