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Commentary
Wheat has garnered much attention and has seen a tremendous amount of short covering in the last two weeks as managed money has covered approximately 60 to 70k Chicago wheat shorts in that time. Geo-political headlines have driven funds to flip long KC wheat in my opinion. The war with Iran brings headline after headline with some valid and others merely clickbait or not the whole story. For example, the following headline may seem bullish, but after reading carefully would in my view lean bearish. Headline: Reuters news reported that Russian grain exports to Iran stalled after the U.S.-Israeli airstrikes last weekend. Wheat opened higher on the news Sunday night once announced. However, a deeper dive into the story would find that most of the grain has reported already been moved. Russian exporters have shipped 1.9 MMT of wheat this season out of a planned 2.0-2.2 MMT, with total grain exports from July-Feb already at “almost 6 MMT”, up from 3.0 MMT over the same span last season. Bull headline, bearish story in my view. Lots of confusion and misinformation. Domestically, state by State condition ratings showed a number of states posted declines, especially Colorado, which fell 18 points from the beginning of January. Oklahoma and Kansas felt lesser amounts with 4- and 3-point cuts, respectively. Texas has a very low G/E rating at 16%, but it’s 3% better than a month ago. The weather forecast remains steadfast in its beneficial moisture outlook through mid-March. The only areas expected to miss much of the rain are western KS and CO. Both are key producing states, but the season is far from unsalvageable. Wheat after all is a weed and can reemerge fast with beneficial weather albeit for a short time. KC seems to be a more attractive bet than Chicago due to potential weather concerns moving forward given where conditions stand now. Spread Chart below, July KC vs. July Chicago wheat
Trade Idea
Futures-N/A
Options-N/A
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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