We saw a nice little bump in wheat futures to start this week. It is presumed that the expectation of a Russian spring offensive into Ukraine was enough to shake loose some of the short (sold) positions held by the fund managers. It is thought that 10-20k contracts were bought back which more than accounts for the near 30c/bushel rally we saw.

As a reminder, speculative traders and fund managers buy and sell commodity futures much as you would shares.  The cumulative net position was a sizeable (65k) sold wheat contracts. Essentially this is a view that the market was high (speculators aiming to sell high) and that it would fall (speculators to buy back at a discount).  However, the re-escalation of conflict in the Black Sea and renewed concerns that the grain corridor may not continue have been enough to shake that view.  As a result, some of the sold contracts have been bought back to reduce exposure to a rallying market.  This is called a short covering rally.


So, what happens next? For the technical short covering to continue, we’ll need to see fresh evidence of a Russian offensive and potential supply issues to arise courtesy of the corridor not being renewed or some other production issue.  But, as the saying goes, you need to feed the bulls every day.  If these events fail to happen, we’ll likely see the market resume a flat or downward path.


From a fundamental perspective, rain across the US will prove to be enormously beneficial should it materialise.  However, the key Hard Red Winter (HRW) state of Kansas looks to remain dry as does other HRW areas such as the Texas and Oklahoma panhandles and a fair portion of Nebraska.  The forecast over the next month includes a series of cold fronts that look to fill in any gaps but remains a flag to watch.


Dry conditions prevail in Argentina.  Recent rains have been patchy at best and the 7-day forecast is for hot and mostly dry conditions.  There is an expectation that both corn and bean production numbers will be whittled down over the coming months. Brazil’s harvest is slightly delayed due to wet weather, but as harvest progresses, expect the weight of a huge crop to counter any shortcomings coming from their southern neighbour.


Looking forward, the war in Ukraine is likely to be the dominant driver of pricing.  The North Atlantic Treaty Organization (NATO) has acknowledged that a new Russian offensive has ‘likely started’ due to the mobilisation of 10’s of thousands of new troops.  Russia has also stated that the presence of the grain corridor is ‘unnecessary’ throwing further doubt over the longevity of the agreement (although this is also what they said last time the corridor was up for negotiation).

Next week

In the absence of fresh bullish news, the market may come under pressure as fund managers use the opportunity to rebuild their short (sold) positions.

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Data sources:   Reuters, World Ag Weather,  USDA, Mecardo,

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