Grain Spreads: Liquidation Continues

Sean LuskGeneral Commentary

Wheat/Corn

Corn found no friends this week as overnight rallies throughout this holiday shortened week were quickly sold into. Despite this morning’s export sales  of 993,100 MT for 2017/2018 that were up 16 percent from the previous week and 12 percent from the prior 4-week average  offered no help. For 2018/2019, net sales of 149,300 MT were reported for Mexico (68,100 MT), Japan (50,000 MT), and unknown destinations (25,400 MT). While over 1.1 million combined was seen as friendly for price, managed money long 200 K contracts two weeks ago have liquidated some longs. While corn has bullish inputs longer term, the short term looks bearish for price. With a hefty carry at 2.1 billion bushels, old crop contracts can easily absorb higher sales while planting progress and condition have exceeded expectations so far in the US. Weather hasn’t provided a bullish backdrop and therefore liquidation continues in both old crop and new crop contracts. Wheat classes across the board have succombed to the same type of fund selling but found buyers on dips near weekly support levels at 5.31 July Kc and 5.14-16 for Chicago wheat. While weather remains hot and dry for most of the winter wheat areas suffering from severe drought, the rubber will soon meet the road in determining what this crop is or isn’t for the hard red winter wheat. The USDA will be out with supply/demand estimates on June 12th, and with the all stocks report at month end followed by another supply/demand report in July. These three reports could determine KC’s fate here as the market will have a better gauge on abandonment. World crop sizes look to come in lower in subsequent reports providing some bid in the market along with the unknown crop size domestically. Kc and Chicago gained on corn to end the week. Watch a KC close over 552 next week or a close under 5.34 basis July. This will determine to me whether to sell KC over Corn longer term using the December contract. Should Kc fall apart I would be a seller of it vs corn. To me its a spread that you can build a major position into over time using new crop contracts, Dec 18 to catch a bigger protracted move in the market. This spread posted a high of 1.89 earlier this year with this week’s high at 1.85. Last December this spread bottomed at 99 cents KC over but could tighten further if corn gets a late season bid. I’m not ready to sell this yet but am sharpening the knives to enter into the market if KC turns lower and managed funds throw in the towel. Keep an eye out here.

Please contact me with any spread relationships you are considering as we can investigate for you and provide some market color and feedback. Call me any time at 888 391 7894 or slusk@walshtrading.com

I will be hosting a free and grain and livestock webinar next Thursday June 7th at 3 pm.  Visit www.walshtrading.com for signup or contact me directly.