Grain Spreads: KC vs Chicago Wheat

Chicago News

KC wheat has steadily gained vs Chicago since early December tightenting over 30 cents and trading up to a .382 Fibonacci retracement from the early Dec 19 low (-98) from the June highs at (-9). See Chart. The near term high is 64.5 KC under basis March 20 futures. The spread was weak today with KC losing two cents vs Chicago settling at 71.4 cents KC under.

Last Fridays WASDE report was considered neutral to bullish for wheat in my opinion. The USDA pegged all wheat endign stocks at 965 million bushels vs the average trade guess of 969 and 974 last month. It is a five year low for ending stocks. Soft Red winter fell to 106 million bushels from 111 in December and 158 last year. Hard red ending stocks are now at 489 million up slightly from 483 million in December. They are down from 516 million a year ago. In my view this is one reason the price of Chicago has carried such a hefty premium to KC for months. Tight ending stocks of Chicago historically in my opinion has kept Chicago at a premium vs the higher protein KC and Minneapolis contracts. Ending stocks for KC are almost 5 times as much as Chicago but the acres planted for KC are 15 million more.

Last Fridays WASDE report was considered neutral to bullish for wheat in my opinion. The USDA pegged all wheat endign stocks at 965 million bushels vs the average trade guess of 969 and 974 last month. It is a five year low for ending stocks. Soft Red winter fell to 106 million bushels from 111 in December and 158 last year. Hard red ending stocks are now at 489 million up slightly from 483 million in December. They are down from 516 million a year ago. In my view this is one reason the price of Chicago has carried such a hefty premium to KC for months. Tight ending stocks of Chicago historically in my opinion has kept Chicago at a premium vs the higher protein KC and Minneapolis contracts. Ending stocks for KC are almost 5 times as much as Chicago but the acres planted for KC are 15 million more.

Since the report Kc has lost over 7 cents to Chicago. It looks like it could lose more should weather forecasts stay consistent. the 6 to 10 and 8 to 14 forecasts show arctic cold east of the Mississippi without much snow cover. Winter kill in these Soft red areas will increase and with the lower ending stocks would keep Chicago bid vs KC for the foreseeable future. KC areas see cold as well but not the sub zero cold that blankets the Eastern Belt. As always these forecasts are subject to change. So trade the charts here. A close under 73 cents could send this spread to 81 and 92 cents Kc under. A close over 64.4 cents is needed to keep this spread intact. Call me with questions. Im detailing the March 20 contract here. We can look at deferred months like July 20 as an example. Kc July is only 41 cents under July Chicago. Should weather issues emerge in the East, I look for that to widen given the low ending stocks of Chicago SRW Wheat.

Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

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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.  

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