The situation in the Black Sea remained the lead story in the agricultural markets throughout July, says Chad Burlet of Third Street Ag Investments, LLC.
Russia made good on its threat to withdraw from the Black Sea Grain Initiative (BSGI) and then proceeded to bomb Ukrainian ports and grain export facilities. Concerns, and wheat prices, reached new heights a week ago when Russia reached beyond the Black Sea and started bombing facilities on the Danube River. Between July 13 and July 25 Chicago Wheat futures rallied $1.55/bushel, 25%.
Since that time some have continued to try to re-establish the BSGI, but most have focused on finding new alternatives for Ukrainian exports or on improving the existing ones. As the bombing of ports has lessened and the Danube continues to operate, wheat futures have retraced about two-thirds of their mid-month rally.
Corn and soybean futures have been impacted by the developments in the Black Sea and the out-sized moves in the wheat markets, but they’ve also been focused on US weather and crop conditions. In general, condition ratings improved in the first half of the month but have fallen in the second half. The eastern belt has improved the most and the west is starting to suffer. In today’s crop ratings, the Mississippi River was the line of delineation with almost every state in the west dropping and almost everyone in the east improving. Markets sold off hard today to end the month, but this afternoon’s crop ratings should help prices stabilize. For the month soybean prices were mixed and corn prices were 3-4% higher.
US wheat production has turned into a pleasant surprise. SRW yields were exceptional, with many farms reporting new record yields. HRW yields were more mixed, but the pleasant surprises outnumbered the unpleasant. Last week’s North Dakota Spring Wheat Tour calculated a yield above the USDA’s last estimate and several bushels better than expected. That comes in contrast with today’s weekly crop ratings where Spring Wheat dropped 7% to only 42% good-to-excellent.
Those better-than-expected yields and slow export sales have helped widen calendar spreads in all three wheat markets. In Minneapolis, the September-December spread widened from a four-cent carry on the 17 to a 14-cent carry today. Kansas City had the biggest September-December move this month as that spread moved from a three-cent inverse on the sixth to a 17-cent carry today. While Chicago’s September-December didn’t widen as much as Kansas City, only ten cents versus KC’s 20, it has pushed past an important threshold. Chicago is currently in the Variable Storage Rate (VSR) pricing window. If the spread remains near its current value through August, the monthly storage rate for wheat delivered against CME futures contracts will increase from five cents to eight cents per month. That possibility has spread further out reacting accordingly. The September ’23–March ’24 spread has widened by 20 cents in two weeks. The old crop/new crop wheat spreads narrowed when the Danube was bombed so the move in Chicago’s September ’23–July ’24 spread was 43 cents in the past week, from a 22-cent carry on the 25th to a 65-cent carry today. The nearby cash basis remains weak, but we expect a strong recovery in the cash market over the next month.
Going forward we expect agricultural futures prices to stabilize. After being woefully uncompetitive in corn and soybeans, the US is now in line with Brazil and export sales are picking up. US wheat is not fully competitive, but we did load five million bushels of SRW onto vessels headed to China last week. With India implementing wheat and rice export bans both of those markets have tightened. War risk also remains difficult to quantify for wheat. We will not trade that market from the short side now that we’ve corrected more than a dollar from the July highs.
About Third Street AG Investments
Third Street Ag Investments, LLC was formed in 2012 by Chad Burlet and Bob Otter. Burlet and Otter are both veterans of the grain and soy markets and their trading program concentrates exclusively on these markets.
Burlet is the Chief Trading Officer of the firm. He spent the first nine years of his career with Cargill, ultimately rising to head the firm's Commodity Marketing Division Oilseeds Trading Department. In 1989, Goldman Sachs hired Burlet to trade grain and soy for a new trading operation of the firm's J. Aron division in New York. There Burlet traded US and world soybean futures, options, and cash for the firm. In 1996 Mr. Burlet became an independent trader headquartered in Chicago. He continued to utilize his extensive network of contacts and experience to successfully trade grain and soy. Beginning in 2008, he added trading on behalf of others to his responsibilities. In 2012 Burlet brought $10,000,000 under his management into Third Street Ag Investments as well as $2,000,000 of proprietary funds that he managed for himself and Otter.
Otter is the Chief Operating Officer of the firm. Until the firm's founding in 2012, he traded soybeans and grain from the trading floor of the exchange and was also a soybean broker for many commercial grain companies. His network of contacts and market information provides a useful and complimentary adjunct to Burlet’s sources. Otter heads up risk management, marketing, and compliance for the firm. A member Chicago Board of Trade since 1975, he has been involved in Exchange governance and operations via his work on numerous CBOT committees including the Business Conduct Committee.
Currently, Third Street Ag Investments has $101 million under management in its Fundamental Discretionary Ag Program.
Data and information are provided for informational purposes only and are not intended for trading purposes. Neither Third Street Ag Investments LLC nor any of their data or information providers shall be liable for any errors or delays in the data or information or for any actions taken in reliance thereon. We do not guarantee the accuracy, timeliness, reliability, or completeness of any financial data or information.
The risk of loss in trading commodity interests can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.
Learn more about Chad Burlet at Third Street Ag Investments.