Commentary
It is my belief that winter wheat futures are under mild profit-taking pressure after sharp recent gains, overshadowing a decline in crop condition ratings. The USDA last night noted that winter wheat crop was rated 45% “good” or “excellent,” down from 46% a week ago, USDA said yesterday. December Chicago wheat futures overnight reached $8.07, the highest for a nearby contract since December 2012, before fading. December Minneapolis Spring wheat hit $10.86 1/2, a contract high for the third day in a row and the highest since 2011, before pulling back. Wheat futures show no signs of a top in my opinion, but its important to note that no market goes up every day. Looking at the charts we could see a 50 cent pullback from today’s close in both Chicago and KC wheat with nothing changing fundamentally. That said, to attract new buyers and rally both markets near 8.50 may take either new demand inputs, or a friendly reaction to next week’s November 9th crop report. Keep in mind global ending stocks are tight in my view. Global ending stocks from major exporting nations which does not include China as they are not an exporter, come in at 49.00 million metric tons. This is down from 58.76 million metric tons last season and 66.74 MMT three years ago.
From a game plan perspective, I think if one wants to be long the market that they use old crop wheat contracts preferably March 22 or May 22. I included a KC wheat May/Sep spread here. Old crop supplies are tight given ending stocks domestically and globally in my view. That may not change in regards to the balance sheets until the winter wheat crops are harvested next Summer. We have just seen the KC wheat May22/Sep22 spread trade from 3 cents over to 20 cents over. Today the spread lost over 8 cents from high to low as profit taking in my view sent corn and wheat lower and this spread. I suggest buying this spread at 7 cents May Kc wheat over at the gap on the charts seen below.
Trade Ideas
Futures-Buy the KEK22/KEU22 (May/Sep) spread at 7 cents May over.
Options-N/A
Risk/Reward
Futures-If filled at 7 cents on the (KEK22/KEU22) spread, I suggest placing a sell stop at 1.4 cents May 22 over. This risks approximately 5.4 cents plus all commissions and fees, which if filled at the stop price would be $275.00 plus all commissions and fees. There is potential for this spread to trade back up to the early August highs in my opinion.
Options-N/A
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