- HEADLINES: Wheat limit up in nearby May Chicago futures; Back months and KC wheat trading; Corn/soybeans decline on profit taking/cash movement.
- Chicago values are mixed at midday with the grains higher (Chicago wheat limit up) while soybeans sag on soybean/wheat spread unwinding. The volume of trade has been massive with wheat being the bullish pin of the day. Soy futures have acted tired on the spread unwinding with losses nearing 40 cents/bu at one point. A hefty 84,000 contracts of May Chicago wheat have traded with the market holding at limit levels.
- Following several days of sharp gains, Chicago acts like the only grain where investors are still chasing is wheat. Note that funds are likely long a record amount of corn and near record amount of soybeans/soyoil. With crude oil values rocketing higher to $112.50/barrel, traders were disappointed that the bio crops of soyoil/corn did not follow. Profit taking is the theme in summer row crop futures following 3 days of rally. We look for a sharply mixed close with selling pressure growing in corn if Chicago/KC May wheat futures can come off limit. Wheat is Chicago’s bullish pin today.
- Chicago brokers estimate managed money has purchased 13,000 contracts of wheat, 4,600 contracts of corn, and 4,100 contracts of soybeans. In soy products, funds have bought 4,200 contracts of soymeal and a net 900 contracts of soyoil. Funds have been selling soyoil after being an early buyer.
- The USDA/FAS announced that 264,000 mt of US 2022/23 soybeans was sold to an unknown destination and another 266,000 mt to China. Of this total, 396,000 mt was sold in an old crop position. We believe that China continues to bid for US and Brazilian soybeans today with at least another 6-8 cargoes being sold.
- Questions are being asked regarding the Russian SWIFT ban and carve outs for several commodities. Historically, food has not been included in economic sanctions with countries like Iran/Iraq recent guideposts for humanitarian purposes. The US ag industry is seeking comment on whether the SWIFT ban applies to Russian grain/food exports. The USDA has commented that they are uncertain.
- Clarification is needed, and we suspect that although the SWIFT ban was decided at a high political level, the detail of the ban is still being worked out.
- Yet, booking a boat to enter the Black Sea is difficult and no one will provide cargo insurance due to the war. For all practical purposes Russia is unable to export grain/food today. The question of SWIFT and a food/energy carve outs is important in scenarios for world grain trading. The US grain industry is seeking clarification on whether any commodity carve outs were included in the weekend SWIFT announcement.
- HRW wheat spread questions are evident with July-December trading at a $1.30 plus premium. Capital flows and the expectation that the Ukraine war will not go on longer than a few months has jostled this spread violently. We see the KC July/December wheat spread as extremely overvalued, but there is no indication of a top in wheat or guessing when the fund flows will change. Funds are using spreads to enter net long wheat positions nearby at limit.
- The midday GFS weather forecast is further south than what was forecast overnight across Central Argentina with rainfall. Dryness persists across Central Brazil with near to above normal temperatures. This area needs to be closely monitored. It is winter corn that would be impacted.
- Chicago futures have rallied a long way from Friday’s low and the grains are now subject to headline risk and profit taking heading into the weekend. Peace talks would be bearish, while an escalation of the war is bullish. Chicago raised margins overnight which makes capital important in extremely volatile markets. We await a sharp break to reposition long, bull markets always let you in. Don’t chase rallies.