Wheat Rallies from Competitive World Pricing

Published on: 16:23PM Apr 03, 2013

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Wheat rallied sharply Wednesday over rumors that China may be buying US wheat.  This helped bring corn prices higher on the day but soybeans still closed with double digit losses.

The rumors that China may be buying US wheat could be true or it could be just "headline chasing" as large fund position changes usually warrant.  The fact that US wheat was underpriced to European wheat is probably the best explanation because that spread was "out-of-line".  The managed money has been net-short wheat and this could be simply short covering.  When the report was released old crop corn was virtually untradeable because it was lock limit.  Some were synthetically getting out and some were just selling wheat to get spread.  May wheat is coming back to a healthy premium to May corn closing at exactly +55 cents.  That spread had been trading as low as 15 ¾ cents UNDER corn before we saw huge quantities of corn for feed switch to wheat.

May Corn – May Wheat SpreadMay Corn - May Wheat Spread

We know that there has been a large net-long corn position underwater.  Corn open interest was down substantially yesterday which is to be expected with the price action.  We saw Tuesday’s rally quickly turn negative as it was their first chance to lay off some of their position.  We think this could continue to weigh on corn prices unless wheat has some sort of bullish story we aren’t aware of yet.  We still haven’t had any USDA sale announcements since the break.  Will demand come in fast enough to account for the additional bushels?  The market has done its job rationing and now we are possibly looking at a 900 million to 1 billion bushel corn carryout this year.  That could put extra downward pressure on new crop, especially with 97.28 million acres of corn expected.  For now we will have to watch the Commitment of Traders report for fund position trends as well as the 14 day outlook as any favorable planting weather could add to the weakness or vice-versa should there be delays.  Have a great rest of the week!

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