Lets put last weeks crop report aside for the moment. Since the USDA offered a mea culpa an hour after last Friday’s release of acreage estimates, saying they were going to resurvey a 14 state area for a more accurate and valid count of corn and bean acres, we should dismiss it as well. In my opinion the focus should be on charts, patterns, and potential movement on spreads. A few spreads I think we consider here as I examine and explore relationships versus whats happened in the past has us eyeing wheat versus corn. Chicago wheat, the soft red contract, is trading 60 cents above KC and 89.4 cents over corn in the Dec 19 contracts. This is the low protein wheat contract and given the extreme poor condition via state by state ratings, basis levels in the East have been valued over the Board. KC wheat, the higher protein wheat can be converted into soft or used for feed. The higher corn acreage number released Friday hurt wheat’s price as the more corn you have increases the competition vs wheat for feed. Winter wheat is being harvested now. Once its out of the ground and quality is known, demand will drive price for the winter wheat contracts in my view and I think there maybe an opportunity where we may see Chicago wheat lose to KC and lose value versus corn. Basis December futures, Chicago Wheat (ZWZ19) sits approx 90 cents over Corn. We could see this spread tighten in the weeks to come in my view to where KC wheat sits over corn at just 29 cents over. This may have more to do with corn rallying later this growing season due to many factors while Chicago wheat’s supply side story becomes a known in the market.We would need to see increased demand drive Chicago wheat higher or a global weather issue affect price while no significant rally in corn. (See chart below) There is plenty of risk but if one could sell Chicago wheat (WZ19) and buy December corn (CZ19) , at or near 1.00 Chicago wheat over, it maybe worth a shot in my opinion. Aggressively one could sell at the market at or near 90 cents wheat over. In any event, I would use a GTC stop loss at 1.12 wheat over. Call me with questions or comments at 888 391 7894 or [email protected] Due to the holiday this week, my weekly grain and livestock webinar will be held Friday July 5th at 2 pm Central. Sign Up Now
