Grain Spreads: Trade Wars/ Mineral Deals Wheat & Soymeal
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Commentary
Outside noise lifted wheat and the soy complex today in my opinion. Overnight China stated it’s open to talks with the US regarding tariffs and said the US should be prepared to take action “correcting erroneous practices” and cancel unilateral tariffs. The market took this statement as a positive move toward trade and tentatively bought the soybean market in my opinion. The Trade has become immune to such rumors prior, but the fact the Chinese raised their voice here, soothed fears as equities took off and bond yields rose. Wheat prices have been beaten down as weather has been non-threatening with moisture abundant in many areas. July Kc wheat hit contract lows this week. However, low prices sometimes bring in bargain hunting amid potential increases of demand. There are rumors of some new countries possibly making purchases for future shipment. Then there is the potential for trade deals that may increase buying of US AG by non-traditional buyers. Lots of "ifs and "maybes" here, so as always, we should keep things in perspective. That said, two things are certain this week. First managed funds are short 98K futures/options in soymeal, 2k from the record short. In Chicago wheat, managed money is now short 121K contracts, the largest short in 2 years. Managed money has been net short for the last three years or 148 weeks, a record. Funds stopped and reversed today with some short covering. The Trump administration is also taking a harder-nosed stance against Russia, which then could lead to more sanctions. Ukraine which agreed to minerals deal with the US this week has been signing onto almost everything placed before it by the US and improving its position with the US and Trump administration. Contrarian view here but I think funds that are heavily short wheat, and soymeal will eventually cover here. When? Who knows, but I think it is a good risk to reward ratio to bet further out on the calendar for a possible rally on short covering. Perhaps the geo-political/trade war noise may possibly prod the funds to short cover.
Trade Ideas-
Options-Buy the March 2026 Chicago wheat 7.00/8.00 call spread for 11 cents.
Risk/Reward-The Maximum risk is the price paid 11 cents or $550 plus commissions and fees. The maximum value one could collect at option expiration on 2/20/26 is 5K minus trade costs and fees.
Options-Buy the March 2026 Soymeal 350 vs 400 call spread for 5 points.
Risk/Reward-The Maximum risk is the price paid for the spread at $500 plus commissions and fees. The maximum value one could collect at option expiration on 2/20/26 is 5K minus trade costs and fees.
Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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