Commentary
Wheat futures potentially climbed after Canada’s agriculture statistics agency reported a sharp drop in the country’s inventories at the end of last year. Signs of easing in Russia/Ukraine tensions have added pressure recently in my view, but the data that was released today. Canada’s wheat stockpiles totaled plunged 15.6 MMT at the end of December, down 38% from the same date in 2020 and nearly 2 MMT smaller than expected. The trade was looking for a number at 17.875 million tonnes. The drop reflects poor growing conditions in western Canada in my opinion. The Minneapolis contract was the best performer throughout the session and was aided from a bullishly construed Stats Canada report that showed smaller-than-expected supplies of wheat in Canada. That energy then spread across the wheat complex amid expectations that USDA will incorporate the Canadian numbers into the U.S. balance sheet tomorrow as well as demand for U.S. wheat that possibly increases. Time will tell on increased US demand. The overall rally in wheat since August 2020 has been supply side related in my view. Today’s data showed a global balance sheet getting tighter. For tomorrows USDA supply/demand report, traders project a very minor adjustment from last month, with ending stocks projected to come in at 629 million bushels versus 628 last month. The range of guesses is from 596 to 655 million for ending stocks. World numbers are seen just below 280 million metric tons, about the same as last month. Its probably too soon for USDA to make adjustments given the Canadian data but we will see what the cite in tomorrows report. We still think that the recent saber rattling in Eastern Europe can erupt at any moment, although it appears perhaps a little less likely that armed conflict is a given, due to statements by NATO and the Russians yesterday.
Trade Ideas
Futures-N/A
Options-Work to Buy the May 22 KC Wheat 9.00/10.00 call spread for 10 cents OB. If filled at entry, risk approximately 6 cents from entry.
Risk/Reward
Futures-N/A
Options-The maximum risk is the price paid for the call spread which in this case is 10 cents or $500.00 plus commissions and fees. I would exit this trade if the spread traded down to 4 cents and close it out on a settle below 4 cents.
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