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Commentary
Wheat markets closed sharply higher and near the highs of the day as wheat followed the broad-based commodity rally that was seen on the heels of the Israeli strike on Iran and the rumors/news releases on the US RVO policy that can see a potential significant increase in soybean oil demand that pushed soybean oil futures limit up across the board. In my opinion wheat futures have been the weakest link among the major grains so far this spring, but that could change in my opinion. Many Middle Eastern nations are dependent on wheat imports, and an escalating conflict in the region could prompt global buyers to increase their strategic grain reserves, especially given the recent price depression. The June WASDE report raised new crop US exports, although supplies remain very adequate. Speculative funds hold a significant net short position in Chicago wheat, approximately 95K shorts according to the latest CFTC data. If this war rages on in the Middle East, I look for more short covering. Trade Idea below. For the week KC closed 8 cents lower in a 33 cent range, Chicago 11 cents lower in a 55-cent range and Minneapolis 1 cent lower in a 27-cent range.
Trade Ideas
Futures-N/A
Options-Buy the Dec Chicago wheat 6.50/7.50 call spread for 9 cents or $450 plus commissions and fees.
Risk/Reward
Futures-N/A
Options-The risk is the price paid for the option call spread which is 9 cents or $450 plus call, commissions and fees. I’m looking for the underlying Dec futures to test the 50% retracement from last year’s high to this year’s low on the December Chicago contract. At 6.51, with a possibility to challenge near 6.80.(See chart). Work an offer to exit at 40 cents on a GTC basis for a 31 cent gain less trade costs. Risk no more than 5 cents from entry on a GTC stop loss risking approximately 5 cents or $250 plus commissions fees.
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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Walsh Trading
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