Morning Comments March 7, 2022

Tractor Winter Oil Painting Vf

The front month wheat contracts continued their surge higher, again closing limit up on the day Friday while corn spreads unwound a touch sending December 17 higher while May only gained 6. Soybeans were lower on the day across the board. Commodities as a whole saw their biggest weekly gains since 1960.

Developments between Russia and Ukraine are limited as Russia continues to attack Ukrainian targets and the Ukrainian military continues to fight back. The third round of talks between the two countries' delegates is expected to be held today, though limited progress is likely to be made, according to experts. 

As the war wages on, the West finds itself in an awkward position of trying to find just what punishment would discourage continued aggression without creating major implications to consumers and the economy via massive moves higher in goods. Overnight oil surged higher on news of a possible embargo on Russian oil, trading to over $130/barrel before settling back a bit, currently finding itself up over 26% in the last week.

After the close Friday, the CME announced wheat limits would expand to 85 cents from 50, with expanded limits moving to $1.30 in an attempt to clear out the pent up demand on the buy side. The fact that we continue to max out limits actually makes the push higher worse in a way, as the buying never seems to find an end. 

Perhaps the most interesting discovery in all of this is the impact we're seeing retail investors have on this rally. Many remember the term retail investors when thinking about AMC and Gamestop and their epic rips higher on limited fundamental information at the start of last year, and it appears they have found commodities.

The Teucrium ETFs for Corn, Soybeans, and Wheat were established in 2011 and have had relatively decent success attracting outside investors into markets they may not otherwise participate in due to the risk of delivery and the other complicated aspects of trading commodities. Over the last handful of days, the retail investor crowd has discovered the ETF, with Wheat ($Weat) becoming the 5th most discussed trade on Redditt's Wall Street Bets and the 3rd most discussed trade on Stockwitz. 

The ag futures-based ETF uses the underlying trading months to manage their position estimated to be nearly $500 million in wheat and close to $200 million in corn. 

The increase in volume is obvious, as in the entire month of February we traded 22 million contracts of wheat. On Friday we traded nearly 27 million contracts that day alone, having traded over 54 million contracts in the first 4 days of March.

As a result of this massive interest in commodities from outside sources, we are seeing an incredible divergence from futures in the cash market, with many elevators taking their bids well out into the deferred months if they are even looking to buy at all.

With wheat up limit higher again overnight, we soon must begin to wonder what happens when the tool created to manage risk becomes more riskier than an outright cash transaction. It is likely this entire concept will come into focus soon as even the most well-managed elevators may find themselves in a far tighter capital position than they ever imagined.

Looking ahead, we will continue to monitor what is happening with Russia and Ukraine. Ukraine's agriculture ministry is looking at how much grain and supplies can be exported via rail while under attack, saying they will do all they can to continue to supply the world of grain. However, one must wonder if port loadings are shut down due to risk of attack if anyone would feel safe loading or moving anything via rail at this time either.

We will get updated export inspections this morning, with solid corn shipments and decent bean shipments expected. We will get an updated supply and demand outlook from the USDA on Wednesday as well, though limited attention will be placed on that as the world's grain and oilseed pipeline has been turned on its head and this outlook is likely thought to be fishing behind the net.

Corn up 15 to 20

Beans up 25 to 30