Grain Spreads: Wheat/Corn

Sean Lusk General Commentary

Commentary

Corn and wheat’s fortunes remain tied together in my opinion led by the Ukraine-Russia story. Russia’s conquest of Ukraine didn’t occur as was anticipated on Friday. Ukraine is holding out and has bogged down the Russian advance. The western powers have increased financial sanctions, employing SWIFT to halt Russian bank transactions. Therefore corn futures followed wheat higher on concerns Russia’s war with Ukraine may disrupt the global grain trade, including exports out of the Black Sea region. Combined, Russia and Ukraine account for nearly one-fifth of world corn exports. USDA reported 1.544 million metric tons (60.8 million bushels) during the week ended Feb. 24, down from 1.578 MMT the previous week. Expectations ranged from 1 MMT to 1.7 MMT. . Marketing year corn export shipments to all destinations fall short of the seasonal pace needed to hit USDA’s target by 100 million bushels, but the deficit is rapidly shrinking as China picks up the pace of taking shipment on the massive purchases it made a year ago. Ukraine export terminals remain closed. The longer the invasion/war goes on, the higher the damage sustained to Ukraine’s economic and agricultural ability to export. The winter wheat crop is in dormancy in Eastern Europe, but will need harvesting in the summer and the corn crop will need planting come spring. The Ukraine livestock industry consumes 7 million metric tons of corn, 3 million metric tons of barley, and 2.5 million metric tons of wheat for feed/year. If the grains are completely wiped out, then the livestock industry must go as well and then the world would see equivalent imports. While this is unlikely in my view, I’m not sure many thought we would get to this point with the aforementioned considerations. In my view funds may continue to buy the dips until there is clarity on this situation. No trade recommendations on this post other than extreme caution is warranted. 

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Sean Lusk

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