Wheat futures continue their advance, pushing easily to new highs for the move on fund short covering and amid ongoing weather issues. Open interest in Chicago has fallen 43,000 contracts since early June, though we mention funds still hold a sizeable net short position. EU wheat futures also closed sharply higher on the day.
As of Tuesday, managed funds were short a net 83,000 contracts, well off the peak of late April (162,000) but is still by the largest short position held in early June. Funds are long KC & MGE futures, though as Chicago is a proxy for the US wheat market, additional fund short covering can be expected without improvement in world weather conditions.
W Europe will remain dry and very hot. Meaningful rain is absent from the Aussie forecast into July 1. Even parts of S Canada look to end June much drier than normal, and a large Canadian crop is required to ease the burden of a rapidly tightening US HRS balance sheet. It’s a supply-driven rally, not one driven by demand, and so a price high is expected by mid/late summer. Our advice is stay patient, and the potential decline in major exporter surpluses warrants a test of $4.90-5.20 basis spot CME futures.
