Commentary
Winter wheat futures rebounded from overnight losses amid ongoing concerns over supply disruptions from the Russia/Ukraine war and poor crop conditions in the U.S. Plains in my opinion. France’s AG ministry lowered its forecast for French 2021-22 wheat exports outside the European Union by 200,000 MT to 9.5 million metric tons, partly reversing a 3 million metric upward revision to the ministry’s forecast last month. China’s winter wheat crop improved more than expected after a poor start last fall. The percentage of first and second grade wheat was on par with normal levels, the country’s AG ministry said. Egypt bought 350,000 MT of wheat, including 240,000 MT from France, 50,000 MT from Bulgaria and 60,000 MT from Russia. Algeria bought an estimated 80,000 to 100,000 MT of optional origin milling wheat, though that figure could change. Japan is seeking 70,000 MT of feed wheat and 40,000 MT of feed barley. July SRW wheat traded to new weekly high of 1131 before pulling back slightly near the close. Looking at the weekly chart, it is my opinion that if the market can settle above 1169, the high from 4 weeks ago, the market may challenge 1225. See trade idea below. It is my belief that last week’s WASDE report came in around the market’s expectations, with the report providing some support to the wider market on a 3.8 million metric ton cut to global carryout driven by an equally large increase in global consumption, driven primarily by the Indian balance sheet. Moving into this week a fresh swathe of data from the USDA on U.S. crop conditions showed the winter wheat crop is improving, but still remains worse off compared to last year. Dryness concerns remain a prominent factor with spring wheat plantings expected to decline this year. please keep in mind the weekly ratings are very subjective in my view, one good rain event in drought stricken areas can improve the ratings substantially in my opinion.
Trade Idea
Futures-N/A
Options-Buy the June 1150 Chicago wheat call and sell the July 12.50 call. Symbol is as follows for this diagonal option strategy. ZWN22C1250:M22C1150[DG]
Offer this spread at – 4 cents. The cost per entry for the spread is $200 plus all commissions and fees.
Risk/Reward
Futures-N/A
Options- the cost to entry is 4 cents or $200.00 plus all commissions and fees. There is unlimited risk here as one is long a June call and short a July call. The short option has a longer expiration and while it’s a Dollar higher on the board,
it would carry unlimited risk if one doesn’t exit as a spread. Therefore I suggest keeping this spread through May 12th , which is the next WASDE report. If Chicago wheat isn’t above 12.00 at that point, I would exit the spread and go flat. Call or email me with questions.
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Sean Lusk
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