Grain Spreads: KC vs Chicago Wheat

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Commentary

Markets surged higher on the overnight open as US/Iran tensions continue to boil over along with stories of more logistical issues at Russian ports. The strength was short-lived as values began to fade in the early morning hours. The overnight trade differed from the day session as much of early trade was driven by renewed fighting between the US and Iran, and a joint attack between the US and Saudi Aribia targeted Iranian targets overnight. This caused a shift in managed money flow from several markets into the energy complex, including from ag contracts in my opinion. Weather models indicate a wetter pattern shift for the Corn Belt, and this weighed on early trade, although not all regions will see these take place. Wheat movement out of the Black Sea remains minimal with no increase expected, Russian and Ukrainian ports still stalled with the supply chain a mess.  We have two more days until month end. I wouldn’t be surprised if we see more choppy sessions in wheat into weekend. December KC vs December Chicago wheat looks toppy basis December. Funds still short Chicago vs KC. Harvest is over 80% complete and a known. I think if anything Chicago tighten some vs KC win the weeks to come. Trade Idea below.

Trade Idea-

Futures-Sell the Dec Kc wheat vs buying the Dec Chicago Wheat at 64 cents Dec 26 KC over. Margin is 770 per spread.

Risk-Risk no more than 8 cents or $400.00 from entry plus commissions and fees. We look to cover the spread at 38 cents Dec KC over for a gain of 26 cents. We think a quick hitter here where funds cover Chicago into the next WASDE report and ahead of first notice over the next month for the Sep contract. 

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Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

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