Grain Spreads: Movement Coming

Sean Lusk General Commentary Leave a Comment

After Mondays somewhat surprising quarterly bullish stocks report for Corn and Soybeans that rallied prices for the week, wheat unfortunately has been stuck within its recent ranges. In fact rallies in KC wheat continue to be sold. After trading to new 6 week highs at 420 on Monday, KC found willing sellers at 420 and 415. It finished down slightly for the week at 404. Settling just below key support. Much of KC wheat’s weakness can be attributed to the relative strength in the Chicago contract. Dec Chicago settled at 490, up 3 cents on the week and is still widening against KC. There are gremlins in this trade, but I think at some point Dec Chicago wheat should make a move one way or the other here. Either rally above into the 5.00s up to 510 and then possibly 525, or test 470 and then potentially 460. (See chart)

Weekly Dec Wheat

Corn rallied 13 cents for the week. It filled a key chart gap on the daily at 392.6 and then ran out of steam basis December futures. Even fears of frost/freeze events in the Dakotas, Western Nebraska, Minnesota, and Wisconsin in the next ten days has not scared the sizable fund short out of their positions. This comes as Informa announced in their crop survey today lowered yield to 167.4 and Production 100 million bushels from the Sept USDA report. Everyone has their opinion and the numbers the funds care about come this Thursday Oct 10th with the WASDE release by the USDA. I will post pre-report estimates on Tuesday’s Grain Spread Report. Remember that markets that don’t rally on potential bullish news here are ultimately bearish in my view. However a corn market rally early next week would come on two fronts in my view. First would be a confirmation of much colder temps moving into the Midwest the next 10 days. With the crop maybe just over 50 percent mature, we could see some damage and a potential rally. Second, would be merely short covering. Funds are short approximately 150 K. Its sizable given this years unpredictability by the USDA’s crop estimates.Regardless, I don’t see the market just hanging around 385 to 390 much longer. I see either a rally to 4.05, which is the 50 percent retracement of this years high/low. Or a move back to key support at 369/370.

Dec Corn

Those considering a few trade possibilities may look at neat term November options in wheat and corn. For Chicago wheat , look to buy the November 470 puts and November 5.00 calls as a strangle. Pay 7 cents OB plus commissions and fees. For Corn use November options as well. I suggest strangle Nov 380 puts and Nov 400 calls for 6 cents OB plus commissions and fees. The options expire on 10/25. Therefore a short term bet. Call or email me with questions at 888 391 7894 or slusk@walshtrading.com

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