Grain Spreads: Wheat Rising

Sean LuskGeneral Commentary


All three wheat classes soared higher today, after Russian President Putin announced he recognized the independence of two breakaway regions in the Ukraine, which led to troops entering the region for “peace keeping.” Values drifted lower into the first hour of trading this morning before the algos took full control in my view. It is my belief that they bought into the close across the AG sector led by wheat. May Chicago wheat hit the 50 cent limit briefly before the close and settled the day 48.4 cents higher. News flashes later in the session revolved around further sanctions against Russia which suggested to funds and algos that a Russian invasion maybe just beginning in my opinion. The news in my opinion  sent funds into a frenzied buying spree prior to the close. Market participants  in my view have no idea what the ramifications will be to the global wheat trade, but until things calm down, no one is willing to be caught on the wrong side of this trade, with the path of least resistance higher not lower amid the geo-political uncertainty. Funds in my opinion are estimated to have covered a majority of their net short in Chicago today, buying 20k with funds adding to length in KC. We are no closer in my view to an end to the violent price swing volatility, so extreme caution is urged. Crude Oil was firmer but faded late. The US Dollar and Gold finished near unchanged.

Managed money’s net short in SRW (Chicago) wheat increased 5,106 contracts during the week ended Feb. 15th to 34,658 futures and options contracts, the largest since July 2020, according to CFTC data. So much of the rally today was short covering in my view. The question moving forward, will the funds build a long position in Chicago? USDA reported a daily sale of 120,000 MT of HRW wheat for delivery to Nigeria, divided evenly between 2021-22 and 2022-23 marketing years. USDA reported 539,366 MT (19.8 million bu.) of wheat inspected for export during the week ended Feb. 17, up from 459,377 MT the previous week. Expectations ranged from 200,000 to 475,000 MT.  Included below is a daily wheat chart. Over 8.61 May Chicago wheat and the next level or resistance is the contract high at 8.75 in my opinion. A close above could push the market to the upper trendline near 927 in the days ahead. If the geo-political situation worsens, meaning a full scale invasion takes place, I think wheat has a good chance of moving sharply higher. My opinion here. Trade idea below

Trade Idea


Options-Buy the April Chicago wheat 9.00 call. Sell the May Chicago wheat 970 call. Bid 2 cents upon entry OB. 



Options-You are buying  an April Wheat call and selling a May wheat call. Two different months. Unlimited risk. Cost to entry for the trade is 2 cents or $100.00 plus commissions and fees. Note: enter in as a spread and exit as a spread as we are using 2 different months. This trade will perform on a continuation rally up the upper trendline at 927. If we trade up there, looking to exit the spread at market. This is an invasion play as exports out of the region may become compromised. Risk 10 cents from entry, risking approximately $500 plus trade costs and fees.

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Sean Lusk

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