Wheat futures extended yesterday’s gains amid ongoing concern the Russia/Ukraine war will force global buyers to seek other grain suppliers. Russia yesterday enacted a planned suspension of grain exports to ex-Soviet countries. Supply concerns have been compounded by worsening drought in the U.S. Plains. More than half of Kansas was classified in severe drought or worse as of March 8, according to the National Drought Mitigation Center. Severe drought is also covering three-quarters of Oklahoma and more than two-thirds of Texas. Right now 61% of the contiguous United States is in some type of drought. This doesn’t mean that is has to persists, but it does mean that we need to get some type of moisture in these areas before the growing season starts. Russia continues to occupy the Ukraine. Every day they get a little bit closer to the capital city of Kyiv. The thinking is that the longer this invasion lasts there, the potential for a lot less corn and wheat planted in the Ukraine could persist. The war in Ukraine is in its 20th day, and the land that Russia controls is currently a relatively small proportion of the total country. Russia appears to have found much more resistance than it expected, and it may not have the resources necessary to conquer and to occupy the land. But, getting control of the ports and the capital city would put it in a stronger negotiating position. That said it continues to raise more questions than answers moving forward and coupled with the poor crop ratings here at home, the wheat market has rallied to begin the week led by today’s 58 cent rally in May Chicago, 57.4 cent rally innMay KC and 40 cent rally in July Minneapolis. Trade Idea using options in KC wheat below
Trade Ideas
Futures-N/A
Options-Buy the June Kc wheat 1300 call and at the same time sell the July Kc wheat 1400 call. The suggested cost to entry is 2 cents plus commissions and fees.
Risk/Reward
Futures-N/A
Options-Cost to entry on the strategy is 2 cents. If filled the cost is $100.00 plus commissions and fees. That said, one is long a June call and short a July call as a spread. $1.00 wide. This is a volatility play to the upside. Should the wheat market re-test last weeks highs in the underlying July contract, we could see the spread between both premiums expand favoring the long call in my opinion. Note: As we enter into this strategy as a spread, it is imperative to exit as a spread. Call or email me with questions on this strategy at any time.
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