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Commentary
Wheat closed about a dime lower and at a new low for the month in both Chicago and Kansas City as a potential diplomatic solution to the Black Sea export disruption is pressuring the market. After meeting with Russian officials, Secretary of State Rubio said both Ukraine and Russia are interested in a limited cease-fire regarding grain and energy facilities. Only 8 countries have bought Russian wheat so far this month, down from 26 in September last year and in August, 16 countries purchased, down from 43 in August a year ago. Cheap wheat has piled up in both Russia and Ukraine with harvest recently completed and a moratorium on shipping and port attacks could unleash a wave of cheap wheat exports from the Black Sea, although some ports will need significant repairs. Weakness went only so far as the December Chicago wheat bumped into trend support around 700. Managed money funds have a very small net short position in wheat and remain open and nimble to buy the dip amid the proposed limited cease-fire. Last night Russia hit another ship and logistics center in Odessa. Any cease fire will likely be short lived in my view. Putin will never adhere to one, it’s just that simple. Trade Idea below.
Chicago Wheat Strangle
Buy the January 27. 6.00 puts for 3 cents. Buy the March 2027, 8.50/9.50, call spread for 10 cents. Package the call spread and put for 13 cents.
Risk no more than 7 cents or $350.00 per 3-way option spread, using a Good to Cancel stop loss.
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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