Grain Spreads: Rolling

Sean Lusk General Commentary Leave a Comment

The Goldman Roll seemed to be in full effect today as many sectors saw some covering and roll particularly in livestock as both Feeder Cattle and Hogs finished limit up. Grain spreads that have been beaten down like KC wheat vs Chicago wheat rallied and potentially may have seen a bottom as Sep KC rallied 6.6 cents vs Sep Chicago. Dec Corn (CZ) continues to tighten vs Chicago wheat. Dec (WZ) traded over 1.10 over Chicago Corn (CZ) on June 28th, today it settled at 74 over. Outright beans finished 6 cents higher while outright corn finished 6 cents lower. In my view there was some roll today out of long corn and short bean positions with beans and then meal being the beneficiaries of the roll. Yet Nov 19 beans fell vs Nov 20 beans losing 1.4 cents on the day. This tells me we may have saw some rolling today in the soy complex. The spreads lost while the complex rallied. Is this a clue or will the spreads play catch up tomorrow and go bid? (Chart below on the Nov 19/Nov20). If beans are going to move higher, look to buy Nov 19 beans vs Nov 20 at a 44 cent carry. Stop loss at 52 under, risking 8 cents. Objective to 22 cents Nov 19 under that is one profit objective.

Nov 19/Nov 20 Bean spread

Kc Sep wheat may have found a near term bottom vs the Chicago contract as winter wheat harvest advances and the crops become a known in the market. Weather int he soft red areas seems to have improved enough to potentially send basis lower. In fact Kc wheat is almost cheaper than corn in our view and at the end of the day if you have no demand for any of it, Im not sure how and why Chicago, wheat, the low protein variety, would continue to carry a 60 to 70 percent premium over KC at this juncture. Again my opinion, but it maybe worth a shot. Look to buy Sep KC wheat (KEU) vs SEP Chicago (ZWU) at 64 cents with a stop at 72 cents. Risk eight cents upon entry with a profit objective to 46 cents KC under.

KC vs Chicago Wheat

What worries me with corn is that everyone seems to be thinking the same way and that’s higher. Sometimes that’s the recipe for disaster. We have our July WASDE report out Thursday at 11 am. Given the major bearish surprise from the quarterly report on June 28th that has been supposedly thrown out due to the bogus acreage number, who knows how they will see ending stocks. The average trade guess for 19/20 corn ending stocks on the report is at 1.692 million bushels with a range of (1.45 to 1.97). The average trade guess is up very slightly from last month at 1.675. If one is looking for a static bullish position in corn, I would consider this type of strategy utilizing December 19 options. Buy the DEC 19 450/500 call spread for 11 cents. Sell the 420/400 put spread for 9 cents. Cost to entry is 2 cents plus commissions and fees. Risk is 20 cents at expiration if Dec corn settles down below 4.00 on (11/22). Max profit is 50 cents if we settle over 5.00. If we have issues with weather later in the growing season or at harvest, I think corn has a better chance of trading near 5.00 rather than retest 4.00. My opinion.

Call or email me with questions. I can be reached at 888 391 7894 or slusk@walshtrading.com Also please join me this Thursday at 3 pm Central for a grain and livestock webinar. We discuss supply, demand, weather, and the charts along with hedge and speculative ideas. Sign Up Now

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