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Grain Spreads: Wheat/ Corn Snap Back


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Thursday's sell-off in the grain complex sure looked like a one day index fund roll as corn,wheat,beans, and meal sold off in unison shortly after the open. Beans have reasons to drift lower if you consider where domestic ending stocks sit in relation to domestic carry over stockpiles were the years prior. Corn and wheat have long term bull stories and in my view the path of least resistance is higher. Currently, Gov't shutdowns and trade deals and pacts maybe slowing the availability of Gov't data released in a usual fashion. However, we have demand figures and weather at our disposal and these are the two issues that should always determine price discovery in grains.

Wheat: Russian rumors are widespread with the Ag Ministry calling for another meeting to discuss the soft export commitment/restrictions of the countrys 20 largest exporters. If Russia exports just 1 MMT (million metric ton) of corn and 1 MMTs of barley, this would limit their wheat exports to 10 MMTs over the next 6 months or 1.66 MMTs of wheat/ month. This would place Russian 2018/19 Russian wheat exports at around 35-35.5 MMTs down 1-1.5 MMTs from the USDA annual forecast. It seems that the Russian Ag Ministry became worried with interior wheat prices near record highs and exporters still selling a sizable415,000 metric tons to Egypt this week.

If you add the Russian news with talk here of lower plantings of up to 1 million acres of HRW, and potential weather issues as the wheat crop comes out of dormancy, we could see a sizable rally. A few "ifs and Maybes" here. The aforementioned Russian news which by the way is the 3rd meeting of their AG ministry in as many months thought to curb exports and quota their crop is at the end of the day friendly for price in my opinion. Wet weather in number one wheat producer Kansas during planting season has given thoughts to lower seedings than last year. Last year, HRW plantings were at a 109 year low. There's some bullish inputs for sure from a fundamental perspective, the key will be if they come to fruition. If they do, I think this market can trade past 6.00 up to 6.60 to 7.20. Somewhere between 10 to 20 percent over last years high (5.90). My opinion here. If one were to take a shot, look at buying the July 19 6.00 call and sell the 6.80 call for 7 cents. KC Futures are at 5.25. I know its far out of the money, but its something static that allows one to add futures or futures spreads if conditions warrant. Call me for levels or for our charts at 888 391 7894 or email me at slusk@walshtrading.com.

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About the author


Sean Lusk is a registered commodity broker and Director of the Commercial Hedging Division of Walsh Trading in Chicago. Sean began in the business as a runner on the trading floor during summer breaks from college in 1993. Upon his graduation from Southern Illinois University at Carbondale in 1996, Sean began his career on the trading floor of the Chicago Mercantile Exchange (CME). Overseeing billions of dollars of transactions working as a clerk in the Eurodollar pit, Sean took the next step and became a floor broker and member of the CME in 2003. He handled customer orders for banks and investment houses from all over the world from inside the Libor pit at the CME.

Now, at Walsh Trading, Sean utilizes his experience in the marketplace and his professional client service skills to aid and assist customers in their trading endeavors.  

He writes daily and weekly commentaries focusing on both the Precious Metals and Agricultural Markets along with related market activity.

Sean has been quoted in various media outlets discussing futures markets. 

These include:

 

  • Futures Magazine
  • Reuters
  • Forbes
  • Kitco
  • Nikkei Press
  • CCTV.com

 

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