And today from barchart:
- The two best read for real market fundamentals (as opposed to USDAS's imaginary version) are futures spreads and basis.
- However, in old-crop winter wheat at this time of year there are no futures spreads and this year national average basis has gone a bit haywire.
- We've seen this before, and it will work itself out, most likely in line with a normal Rubber Band Disposition and Newsom's Market Rule #6.
This is a difficult time of year to get a good read on real supply and demand in winter wheat markets. March contracts have moved into delivery, leaving us with only the somewhat flighty May Chicago (SRW) and Kansas City (HRW) issues to track. And don’t bring up “there is always USDA reports…”. My thoughts on those are well known and unchanging. Remember, I’m interested in real world fundamentals rather than make-believe. My two preferred indicators are futures spreads, useful for both US and global supply and demand, and national average basis for the US side. Once March moves into delivery at the end of February, and July contracts are the first issue for new-crop, we have no old-crop only futures spread on which to rely. Yes, we can still study new-crop forward curves for a long-term view, but short-term we are partially blinded.
Then a year like 2022 comes along. Due to global events, in this case war in the Ukraine due to an invasion by Russian troops, we’ve seen the Chicago May contract (ZWK22) explode, leaving a trail of limit moves (both up and down) on its daily chart. A side note, total open interest in the market has fallen since peaking at 402,800 contracts on February 14. Russian troops launched a full-scale invasion on February 24. Chicago wheat was showing total open interest of 336,700 contracts at the close of Thursday, March 10. However, as we see on its daily chart, May Chicago has rallied from a close of $8.04 on Friday, February 18 to a high near $13.64 on March 8. This move of $5.60, a 70% increase, largely occurred without a significant change in US supply and demand....
....MUCH MORE
Futures up a few cents at 1091.25
