Commentary
The October USDA WASDE report will be released on Thursday, October 12. The trade expects the USDA to cut 0.3 bushels off the corn yield bringing it to 173.5 bushel per acre. For soybeans the USDA is expected to drop 0.2 bushels per acre off the U.S. soybean yield according to the Reuter survey. The grains today particularly wheat is riding the coattails of crude oil and the commodities in general to open the week after Palestinian militants attacked Israel on a major holiday Saturday. The direct effect on the grains or even crude oil is minimal at this point, but “geopolitical tensions” should continue to dominate the headlines this week as these attacks are being referred to as Israel’s 9/11. Wheat and bean meal were the only agricultural commodities that were up today, Oct.9. The rest of the grains and meats were all down. There is a lot of uncertainty moving forward here and it is my contention that fund managers that are heavily sided on way or the other will liquidate or offset positions amid geo-political uncertainties. Normally I think we could see continued inflows into the Dollar that would in my view deter any commodity rally, but I think the fear that this conflict could powder keg across the Middle East and other areas may create some unease among fund managers and allow for some short covering. Managed funds into the week are net short approximately 98K Chicago wheat, while Short 159K corn and near neutral beans. Trade idea below.
Trade Ideas
Futures-N/A
Options-With short covering in mind, look at buying the Jan Chicago wheat 6.05 call and while selling the July 740 call. Offer the spread at even money. It settled today at a 2-cent debit.
| ZWN24C740:F24C605[DG] |
Risk/Reward
Futures-N/A
Options-There is unlimited risk here as one is short a July 24 call with a late June 24 expiration, while the at the money long expires in 2.4 months. One can place a 10 cent stop loss upon entry that risks approximately $500 plus commissions and fees. See chart, looking for a potential run up to some Fibonacci retracement levels. If achieved, we will look to exit the spread.
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Sean Lusk
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