KC and Chicago wheat were the best performers in the grain sector today and look to put in potential near term bottoms for now. Shorts drove KC wheat to trend line weekly support at 5.02 yesterday, missing a buy target by a half penny so far this week (low 502.4). Chicago broke past weekly support at 493.2 trading down to 486.2 basis July but was able to fight back to 494.2. If one looks back to the weekly price action last month, both contracts suffered significant pullbacks into mid-month following the supply demand reports only to find willing buyers (managed funds) amid weather concerns namely drought. I’m seeing the same type of price action this month as some profit taking occurred prior to the WASDE report, but the bulk of the selling or in this case long liquidations occurred following the reports release. In my view there wasn’t anything to buy immediately following the USDA report last Thursday as ending stocks for all wheat classes remain elevated while the USDA left out any numbers on winter wheat acreage abandonment. As winter wheat harvest begin in parts of Texas and slowly move their way north into June an early July,we are going to start to hear noise from crop scouts on trouble spots within the drought stricken regions of Texas, Oklahoma, and Kansas. The government isn’t out with another report until June 10th,where there will be another adjustment to ending stocks and their purview on where winter wheat production sits. I believe abandonment if any will show on the next crop report. I’m not seeing anything on the options regarding upside that excites me here but if you are looking for something conservative, look to buy KC wheat and sell Chicago wheat. Buy at 19 cents KC over, with a tight stop at 14 cents risking 5 cents. Upside targets sit at 26 and then 33.4 cents. Those thinking that the worst is behind us regarding the wheat condition and that the path of least resistance is lower can take a shot with buying a July KC wheat 480 put at 3.4 cents. If KC wheat can’t hold 496.4, I think futures can break to 481.2 in my opinion.
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