Grain Spreads: Funds Drive it Lower
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Commentary
The wheat market posted its fourth consecutive day of lower closes with markets losing approximately 50 cents per bushel from last week as geopolitical headwinds subside. For the last three years it has been rinse and repeat from managed money. Funds rewarded the rally and re sold the market yet again as the headline driven gains of last week fade away. The sell-off reminds the trade who is driving the markets. Managed Money has been aggressive in abandoning the short covering and pressuring the grain markets across the Board as Trump reinforces the ceasefire agreement between Iran and Israel. Without that problem firing up the markets, it’s the cash markets and production possibilities that direct prices in my opinion. Overseas, Sovecon raised Russian wheat production 200K to 83 million metric tons today. Total grain production increased to 129.5 million metric tons vs 127.6 million metric tons last week. EU wheat futures drifted 5 to 10 cents lower as more business goes to Black Sea origins. Wheat is being harvested at a big clip, Russia’s wheat crop grows in size, and the geo-political situation in the Middle East for now has done a complete 180 from the weekend bombings of Iran’s nukes. I believe the selloff in the grain market this week is that funds press the sell side while recent longs get run out as the geo-political situation gets worked out presumably. Oh, and the weather is perfect in the U.S. Greenhouse effect for corn and beans while wheat, which has a few trouble spots across the US, has harvest advancing at a more aggressive clip which is pressuring cash and spreads. The grain trade sees end the of quarter planting intentions, and on farm stocks on Monday. Perhaps the fear of the USDA entering in and throwing a curve ball to the trade will create a temporary halt to the selling into month and quarter end. No trade recommendations.
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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