Commentary
KC and Chicago wheat hit levels not seen since 2008 in trading today. Wheat futures posted fresh contract highs on the escalating Russia/Ukraine conflict, which has raised major concerns about the availability of supplies from the Black Sea region. The Minneapolis wheat touched a new high since 2011. The absence of Black Sea wheat is beginning to be felt in cash grain markets this week, with several international tenders taking place. The inverse between July ’22 and July ’23 futures contracts is widening $1.25+ per bushel today in both Chicago & KC, with the ’22 contract trading $0.75/bu higher while ’23 was down more than $0.50/bu, showing the market’s hunger for wheat in the near term. May corn futures rose as high as $7.47 3/4, a contract high for the second day in a row. March corn touched $7.57, the highest for a nearby contract since May 2021. Based on continuation charts, bulls could possibly target the May 2021 high at $7.75. Russia and Ukraine provide almost 20% of world corn exports.
The volatility in grains and oil seeds is leading the CME to raise margin requirements starting next session. May 22 corn had a 36 cent range today. Volatility in wheat reigned today. May wheat had 75 cent range today and the spreads in ZWK22/U22 (May/Sep) and ZWK22/Z22 (May/Dec) traded as high as $1.85 and $2.01 at one point today. Both these spreads were also locked limit bid at 1.50 cents higher for a significant portion of the session today. It is my opinion that the trade is grappling with this issue. Should funds look to extend long positions deep above 10.00 versus the possibility of the whole market seeing a sharp reversal at any moment. This is different than a weather or a supply side issue in my view. The end of the supply disruptions could be eliminated by the weekend, or this war could expand for two months. I’m not sure anyone including myself has a clue here. Spreading in futures and options was more volatile than the outright contracts in some respects today, and offered those looking for safer havens no solace.
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Sean Lusk
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