At 3.00 AM central time Chicago, the Chinese announced retaliatory tariffs against a litany of U.S. products namely Soy and Corn. The announcement immediately sent corn, beans, and wheat spiraling lower amid light overnight volume. Technical damage was done and stop losses initiated. Beans broke 55 cents, Corn 16 and all wheat classes over 10 lower at one point. Early morning noise of limit down potential faded as the USDA announced two purchases for future shipment to none other than China. Fear and then selling re-emerged later as beans dipped below 10.00, while corn posted double-digit losses. Beans though bounced to finish above last weeks low to close at 1015.2 basis May. Corn while lower, held weekly trend line support at 373 (daily low at 372) finished down 7 cents. Wheat fell by 1 cent in Chicago while KC gained a penny. Why the bounce in beans when potential tariffs could be cemented later this spring? For starters look at the action in soy meal. After breaking almost 20 handles this morning, this market clawed back to near the highs of the day and just below key resistance at 384.0. Should meal move higher, look for beans to follow. Second, it seemed like buying the dips became the theme across the commodity board, significant bounces in Feeder and Live Cattle, Crude Oil, and may be most impressive of all was the 700 point swing in the stock market. Perhaps these rallies aided the push higher in soybeans and meal amid fund buying across commodity sectors. My fear for the corn and bean producer though is that these trade wars hurt them the most. This now becomes a headline driven market in the near term which in my view will result in pricing anomalies regarding inter market spreads and relationships. (example at one point today soy meal was one handle higher while beans were 40 cents lower). Producers should consider using any rally as a reason to buy puts and sell calls in my opinion. Call or email me for my charts and trade ideas in futures spreads and options. 888 391 7894 or slusk@walshtrading.com. Trade I would consider on a rally: Buy 1 Sep bean 1020 put. Sell 2 Sep 1160 calls. Buy at 2 cents OB, plus commissions and fees.
Wheat /Corn
Our weather guru WX risk, the AG weather site sees a warming trend the second half of April across the majority of the Midwest which includes all portions of the winter wheat belt. Problem is the warmth isn’t accompanied by rain where it’s needed most for the winter wheat states hit hardest by drought. Wheat crops in Oklahoma, Texas, and Kansas face continued deteriorating conditions with good to excellent conditions. The condition ratings for the winter wheat crop are the second worst ever at 31 percent good to excellent in 20 years. The fear here is that the low production could knock ending stocks down between 500-600 million bushels from over 1 billion according to Hightower. I didn’t see anything on wheat in the tariff announcement and it wouldn’t matter anyway in my view as China is not a major trading partner regarding US wheat compared to corn or beans. If you are going to take a shot or dip you foot in the water, I would consider getting long KC wheat vs Chicago and Minneapolis wheat or vs corn. Below a few ideas:
Buy KC wheat vs Corn: Buy at 114.0 wheat over with a stop at 1.04. Near term target is at 1.25, the top-level of a weekly gap on the charts. I wouldn’t be surprised though to see this trade to 1.48 wheat over.
Buy KC wheat and sell Minneapolis wheat: Sell this spread at 84 cents Minneapolis over and look for the spread to tighten to 50 cents. Stop at 95 cents.
***Option Trade***: Buy the June KC wheat 520 call for 16.4 cents. Sell 2 June KC wheat 470 puts for 7 cents apiece collecting 14 cents. Spread debit 2.4 cents or $125.00 plus commissions and fees. Sell the ratio at 30 cents with a stop-loss at negative 11 cents.
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