Commentary
The strong bull market run in wheat futures continued today as all wheat classes were up over 20 cents. Recent price setbacks have been viewed as buying opportunities. USDA’s Supply and Demand report bolstered the bullish outlook for tightening global stockpiles. USDA cut wheat imports by 10 million bushels, while cutting exports by 15 million, while also raising seed usage and cutting mill usage slightly. The net result was another notable drop in hard red winter wheat stocks, but an overall marginal increase in total wheat stocks of 3 million bushels. Global quality milling wheat stocks remain tight in my opinion, and will remain so until we harvest a big enough crop to rebuild them. Minneapolis or the Spring wheat contract continues to be the biggest gainer in the sector as both front month futures contracts, Dec 21 and March 22 sit comfortably above 10.00. USDA lowered projected global wheat ending stocks for 2021-22 by 0.5% to 275.87 MMT, down 6.7% from 2020-21 and the lowest in five years. It is my belief that today’s buying was also fueled by a report today that Russia, the world’s largest wheat exporter, plans to set a grain export quota no later than mid-February and it will run through June of 2022. Russia may also make weekly adjustments to a formula for calculating its grain export tax, in case of further significant price gains in global wheat markets. Outside influences like the surge in the Dollar and the weakness in the energy sector were simply shrugged off today in the grain sector. I would not surprised then to see spot wheat contracts scream higher into Thanksgiving. Trade Idea below.
Trade Ideas
Futures-N/A
Options-Sell the Chicago December 21 wheat 9.00/8.50 put spread at 47.4 cents.
Risk/Reward
Futures-N/A
Options-the risk on this trade is approximately 2.4 cents plus commissions and fees. The max loss is 50 cents or $2500.00 plus commissions and fees. However , one is collecting 47.4 cents upon entry or $2350.00 minus commissions and fees. The risk is then 125.00 plus trade costs. I’m looking for a potential move towards 8.50/8.70 should this rally continue. If filled at 47.4 cents, work to buy back the spread at 15 cents GTC.
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