Grain Spreads: KC/Chicago Wheat
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Commentary
The CFTC report shows the net short in CME and KC wheat have been unchanged for at least 2 weeks, with approximately 120K combined futures and options shorts. Prices have been under pressure since the onset of harvest, and the market looks to have exhausted itself near term. In my view there wasn’t anything new that has entered into the market. We have WASDE report from USDA Friday. Perhaps maybe today’s double-digit rally in Kc can be attributed to some seasonal bias higher in my opinion. Wheat ended August lower contrary to the historical bullish bias in my view. September is historically the most bullish month out of the year. Since 1980, December wheat has closed September out higher 27 times and lower 18 times. That bias has become even more bullish recently with prices closing higher eight times in the past decade. Wheat futures were firm overnight on light volume. The opening of the day session saw additional buying with highs of the day going into the close, rally was led by KWZ25 that did put in a nice outside reversal off the lows from last week and did stop just shy of the 20-day m/a with moderate volume. However, there was strong buying of the KC/Chicago December wheat spread on strong volume of 2880 cars. That was about 2K more than what we saw late last week. The overall wheat market needs a story as Spring wheat harvest wraps up and winter wheat plantings begin. Whether it’s a trade deal, escalation of war in Eastern Europe, or something else that enters into the market that prods managed money to cover their short, a continuation rally needs a story to fuel the buying in my opinion. I attached a KC/Chicago spread. It is my belief that the spread should favor KC on dips and at least trade back to the 50% retracement at 3.4 KC over from 6.4 under at some point. No trade recs on this report, I need to see evidence that today’s push wasn’t just short covering of an inter market spread basis or outright amid all three wheat classes. One thing to note though longer term though will the Feds return to easing monetary policy urge fund managers to get long broad-based commodity sectors or in the grains case, cover sizable, short positions amid a weaker greenback. Lots of opportunity with that trade into 2026 in my opinion.
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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