Commentary
All three wheat classes Chicago, KC, and Minneapolis wheat settled near session highs after short-lived weakness following the benign USDA report amid little if any negative news in my opinion. It’s my belief the price action in all three wheat classes was dominated by front end buying on the second day of the Goldman roll with calendar spreads firming across the board. Funds came into the day short Chicago over 62K contracts while the last COT data from CFTC showed funds short KC approximately 8K. USDA lowered its 2022-23 national average on-farm cash price projection by a dime from last month to $9.00, though that would still be up $1.37 from last year. The Feb WASDE report showed little changes for the US carryout today with ending stocks up 1M bushels from last month to 568M bu. We saw minor shifts in hard red winter vs soft red that were basically a wash. Global carryout increased by roughly 1 million metric tons from 269.39 (mmt) last month to 269.34 (mmt) this month. Given the fund short in Chicago wheat, it’s not surprising that we saw some short covering in my opinion post report. The wild card here again is Ukraine for wheat and to a lesser extent Corn. Should the pathway to move grain from Ukraine through the Black Sea into Turkey get closed by The Russians due to a Spring offensive on the ground, I think a spread worth looking at is July Chicago wheat vs July Chicago Corn. Attached is a chart of the spread. No trade recommendations as of this point. I have some bullish option ideas in wheat instead of the spread, but we could see wheat gain on corn amid a short covering rally by funds that are aggressively short in my opinion. The trade has become de-sensitized to the events in Eastern Europe vs the hypersensitivity within the wheat trade last Spring. It has been “sell the rumor and buy the fact” in my view where rallies have been selling opportunities, in the last weeks and months. That bias can change in a New York minute.
Trade Ideas
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Risk/Reward
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