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Commentary
The wheat market closed higher in my opinion as Ukrainian wheat export quotes are firming after the 2 attacks this week on ships carrying Ukrainian grain. Furthermore, the Russian Ag Ministry this morning has called for an emergency meeting of grain exporters on Friday to talk about potential export restrictions. Any export restrictions may be seen as a potential game-changer for the wheat market but may be needed as weather in southern Russia is too dry and the seeding window is nearing closure. Dryness in the US Southern Plains remains a looming issue with plantings continuing. Per Commodity Weather Group; released an article showing 50% of the HRW belt will be stressed with the dryness lasting over the next 10 days with the percentage increasing to 100% if the rains in the 11–15-day forecast fail.
Corn and soybean markets were slightly higher today as traders positioned themselves for Friday’s USDA WASDE report. Oncoming harvest supplies continue to put pressure on the market in my view as harvest weather remains perfect in the Midwest. The USDA will update its estimate of the 2024 corn and soybean yields on Friday. These estimates come from sampling fields and surveying farmers. The average trade guess based on the Reuters survey is 183.4 for corn, and estimates ranged from 181.6 to 184.5 bushels per acre. On the soybean side, the trade expects the US soybean yield to be 53.1 bushels per acre coming from a range of estimates from 51.7 to 54 BPA. As the USDA is full of surprises, I will refrain from making any predictions. Wheat has a story, as harvests are complete in the Northern Hemisphere and supply side concerns emerge over drought both in the US and Eastern Europe/Russia. It may be enough to drive prices near the Spring highs if dryness persists. However, we would like to remain conservative, defining risk first looking for a bigger protracted move higher. With this in mind, consider the following trade.
Trade Ideas
Futures-N/A
Options-Sell the March KC wheat 8.00/7.00 put spread at a 91-cent collection minus trade costs and fees.
Risk/Reward
Futures-N/A
Options-the suggested risk on the trade is 6 cents or $300 plus trade costs and fees. We think if weather stays dry this market can make a run above $7.00 just like it did in May when frost /freeze concerns in Russia rallied the wheat market from the March lows. Work a GTC bid to buy back the spread at 50 cents for a collection of 41 minus trade costs and fees.
Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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