Grain Spreads: U Turn in Wheat

Sean LuskGeneral Commentary

Commentary

May Chicago wheat closed up 20 1/4 cents on Tuesday at $5.79 1/4 and near the session high. Prices hit a contract low early on in the session. May KC wheat rose 19 1/2 cents at $5.81, nearer the session high. The rally today comes after prices hit a contract low last Friday. Short covering was the feature as both Chicago and Kansas City wheat led the complex while Minneapolis wheat acted as tail of the dog, finished up 10 cents. Geopolitical risks remain elevated, leaving fund managers worried about their big, short positions as trade pathways continue to be obstructed with attacks still occurring in the Red Sea. Over the holiday weekend, Houthi rebels in Yemen attacked and almost sunk a grain cargo ship that was rumored to be going from Ukraine heading to Iran carrying corn. This signals potentially to the trade that the attacks are escalating in the region and that any ship seems to be fair game. That said the wheat market didn’t see much of a short covering bounce until today’s day session. In my view news that the Biden administration was set to announce serious new sanctions on Russia this Friday may have finally prodded fund managers to take some shorts off the table. Remember that managed funds have defended their significant short positions in wheat since last Fall amid selling on rallies. There is some uncertainty now amid geo-political events with Russia now possibly regaining the upper hand in Ukraine. Technically for May Chicago wheat, support is 5.66, which is the 5% down target for the year. A close back under and we visit trendline support and near last week’s close at 557. A close under 5.57 and its 5.46. and then last Fall’s low at 5.40. Resistance is first at 5.93 (21 week moving average), 5.97 (5% down for year), and 5.99 (trendline). A close over these three levels and its 6.24 and then, 6.28. 

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Sean Lusk

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