Grain Spreads: Wheat/Corn Short Covering

Sean Lusk General Commentary


Wheat futures firmed overnight amid Black Sea supply uncertainty. Corn followed to the upside, Private exporters reported 204,000 metric tons of corn for delivery to China for the current marketing year. This sale brings the two-week running total to 2.75 million metric tons of corn, or 108.3 million bushels of corn sold to China. Per Reuters, according to two unidentified sources, Russia is considering the temporary halt in wheat and sunflower exports due to significant price drops in the past few weeks. The Vedomosti newspaper reported, citing two sources who attended a government meeting. The newspaper said Russia’s ag ministry would meet industry representatives soon to discuss the idea of a temporary curb on exports. Interfax news agency also reported Russia could extend restrictions on fertilizer exports for six months until November to help support the domestic market, quoting Agriculture Minister Dmitry Patrushev. Finally, it was also reported the Russian government said they would “consider” increasing purchases into their state reserve fund, up to 10 MMT, compared to 3 MMT in 2022. It is important to note in my opinion that managed funds are net short 110K contracts in wheat and short 56K short in corn coming into today. The grain trade was temporarily soothed when Russia agreed to an extension of the Black Sea last weekend, but the shorter term 60-day extension rather than the proposed 120 days along with negative Russian rhetoric during negotiations leave plenty of questions yet to be answered in my opinion. Coming into a weekend with a heavy short position, the quarterly grain stock and prospective plantings report next Friday, and the fact it’s also month and quarter end next Friday, made profit taking by buying wheat/corn into the weekend by managed money a no brainer in my opinion. I’m watching the July 23/24 wheat spread. Chart attached.  No trade recommendations yet, but it’s my belief that if there is a story for wheat here, that this futures spread has the potential to rally back near parity amid short covering. 

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Sean Lusk

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