The grain markets have been exceptionally volatile since the start of trading on Sunday night, March 2. This was the first market action to incorporate the Russian invasion of Crimea. The action makes obvious sense considering Ukraine is considered to be the, “Breadbasket of Europe” in the same manner that we are to our neck of the woods. Globally, Ukraine ranks third in corn and sixth in wheat exports. Given that grain prices turn higher in times of fear, wheat’s 15% rally and corn’s much milder 3.5% rally both seem rational within the global context of the current political situation.
There are two different market actions currently unfolding. The first is the wheat versus corn spread which has traded to historical lows recently. We believe that the wheat market’s acceleration relative to corn, though fueled by political turmoil is likely to persist. We think the lows in this spread near $1.20 are likely to hold and that a reversion towards the mean sees this spread widen towards $3.50-$4.00 given the current prices and ratios.
The second aspect to reveal itself is the unprecedented commercial selling in both of these markets. Commercial traders had been sellers leading into the Russian invasion. Their actions since the invasion strongly suggest that they expect neither corn nor wheat to remain anywhere near their current levels. Commercial traders in corn have sold 100,000 contracts since the invasion bringing them to their largest net short total since April of last year. Meanwhile, wheat traders have sold 35,000 contracts which, brings them to their largest net short total since December of 2012. You can see the commercial trader position charts, here. Finally, these positions become even more relevant ahead of the USDA Prospective Plantings due on the 31.