Chicago SRW hits expanded limit down on pronounced uncertainty

The Chicago SRW futures market traded limit down Friday, lopping off yesterday’s gains with prices down over 8% by midday Central time for trading on the March, May and July contracts.

Profit taking at the end of the week, and near the end of the month, combined with a decreased risk appetite, contributing to the precipitous drop.  

A market source commented, “we also saw a big drop in futures open interest on Thursday. This backs our theory that the margin calls that started midday yesterday forced some to liquidate to cover after the drop mid-morning.”

The move came just 24 hours after wheat contracts had hit limit up following Russia's invasion of Ukraine, which started in the early hours of February 24 and had raised prices across wider commodity and energy markets.   

Another commented, “prices are way too high relative to other origins that would be called upon to make up the deficit the Black Sea may not be able to supply.”

Traders are mindful of the wide price spread between North American wheat and alternative locations, but supply remains a concern and could create a price floor in the near term.

"[The] market can’t really ignore the fact that planting wheat is probably the last thing on the Ukrainian farmers mind at this point,” Kelly Herrick of Advance Trading told Agricensus.

Reports that Russian officials were willing to meet with Ukrainian leaders added to the uncertainty.

“Many don’t want to take a position home over the weekend not knowing what news may develop,” commented a second source.

Traders may also be assessing the global financing picture after another round of sanctions were announced yesterday.

“No one is going to want to be long if they’re uncertain who they’re going to sell to, or how they’ll get paid,” a former grain trader commented late yesterday, thinking specifically of potential sanctions that could target international payment systems. 

At 75 cents per bushel, today’s market is on pace to have the largest drop in terms of $/bu in the last five years and the second largest in terms of percentage, just behind the 10.5 percent, or 60.75 cents per bushel drop on July 16, 2020.

Kansas HRW and Minneapolis spring wheat contracts also hit limit down during the day, as the market readjusted.