Commentary
Markets closing higher today after mixed to lower trade in the overnight trade and sideways to slightly higher action to start the week. The market has been receiving some fundamental supply side bullish tidbits in my opinion, but will it amount to a sustainable rally where the managed shorts cover en masse. Or will it be rinse and repeat? Will todays and the early week push act as nothing more like a dead cat bounce that ends up being another rally to sell? It is my belief that the market is very oversold technically and can see some fund short covering as was seen last week. There are some problem spots around the World that maybe are worth some consideration going forward. Statistics Canada this morning pegged 2024 all-wheat production at 34.4 MMT, up from 32.9 MMT in 2023 but still below the average 35.125 MMT trade estimate. Slightly friendly in my view. Germany’s Ag Minister estimated the country’s 2024 wheat harvest at 18.80 MMT, down nearly 13% from last season due to poor weather. Less than half of the French wheat crop meets the typical protein levels used by key importers and only 1/4 meets average test weight levels (usually 3/4 of the crop meets this standard). France’s harvest will be the smallest since the 1980s after excessive rains this season. Finally, Argentina’s facing more weather woes as dryness and winter frosts have plagued their wheat crop so far. Rain could be coming within a few days, but the amounts may not be sufficient. Argentina is a major wheat exporter worldwide, with an estimated 6.3 million hectares planted for the 24/25 crop. However, winter frosts and a lack of rain in the center and western ag areas have hit the crop. Wheat markets may have done enough to the downside for now. Dec KC wheat for example has dropped from 7.75 on May 28th to a low of 5.26 last week. Yikes! (see chart) With the aforementioned issues at hand currently, this maybe a bargain spot for a longer-term play higher in my view.
Trade Ideas
Futures-N/A
Options- Buy the Dec Kc wheat 6.50 call. Sell the July 25, 8.00/7.00, put spread. Collect 85 cents upon entry or $4250.00 minus trade costs and fees.
| KEN25P800:700: Z24C650[1-1-1] |
Risk/Reward
Futures-N/A
Options-The maximum risk here is 15 cents or $750 plus trade costs and fees. I would risk no more than 10 cents or $500 plus trade costs and fees.
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