KC, Chicago, and Minneapolis wheat are getting that loving feeling by funds again as dips continue to present buying opportunities amid weather concerns both at home and abroad. Into this weekend and throughout he first few days of June the current forecast has high temps will reach into the 90’s to lower 100’s across the Plains with mid 80’s to mid-90’s across the W Midwest. Such warmth this early in the growing season is unusual, but shows no correlation to a budding drought. In my view into month end a complex North American weather pattern is forecasted, with the GFS model struggling with rain amounts. Flooding rains are slated to drop across the Gulf States amid a tropical system. Some areas could endure 6-9” of rain in the next 5 days. Its the heat and more importantly the continued dryness in the western wheat belt that has caused funds to buy the recent dips in Chicago and KC wheat last week. The buying has continued as the unknown for the market continues to be what this winter wheat crop is or in this case isn’t moving forward. The USDA didn’t report on abandonment in their last supply demand report regarding the winter wheat crop but we will have much more data on that in subsequent supply/demand reports in June and July along with the quarterly report at the end of June. All three reports are a long way off with the first supply/demand not until June 12th. With adverse weather for wheat that could lower production and then ending stocks further, funds are pushing all three classes higher. There also are weather worries abroad as EU and Russian Ag ministers have lowered their crop sizes as arid conditions look to potentially lower production. Big bets are being made throughout the complex in my view with new crop beans and corn on the move at 10.50 and 4.25 respectively. These are presenting both commercials and producers with better hedge potential. Wheat’s final numbers are an unknown as the drought persists despite weak demand. If KC wheat holds 538.6 to 542 into the weekend, I look for a possible move to 5.85. Should Chicago hold 521 into the weekend, it can potentially challenge 559.
Those looking for a cheap option trade may consider the following in KC wheat. Look to buy 1 July 6.00 call. Sell 2 July 650 calls for a total cost of 1 cent plus commissions and fees for the call 1 x 2. A settle above 7.00 in July KC would lose money at option expiration on June 22nd. There is risk here. I am looking for a spike high for a possible move to 5.85 and then 6.08 if the aforementioned weekly support levels hold and if hotter and dryer conditions remain the norm into June. Call or email me with questions at slusk@walshtrading.com or 888 391 7894. On the flip side, I think that once this crop size is known it will be just a matter of time before we see sellers re-enter and profits taken. Please feel free to reach out for trade ideas on spreads and options.
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