Commentary
Winter wheat conditions deteriorated last week as drought persisted in the Plains. USDA rated 30% of U.S. the crop in “good” to “excellent,” down two percentage points from a week ago, below an average of analyst expectations and the lowest for this time of year since 1996. However wheat prices are pulling back following recent gains, although concerns about the Plains hard red winter wheat crop remain, with planting delays also a concern for spring wheat. In the corn market bull spreading in my view lifted corn prices mid-morning, suggesting that prices were supported more by near-term demand than they were planting delays and concerns about the approaching growing season. The lowest of the wheat ratings in my view are in areas of the Plains where abandonment tends to be high anyway as producers graze out their wheat. As such, this year’s abandonment acreage will likely be elevated, but the scope of such is yet to be determined. Despite everything else in my view, supply disruptions from the Russia/Ukraine war and poor crop conditions in the HRW belt were ignored ignored today until the close. It is important to note that previous wheat downturns have been stemmed by renewed buying interest in my opinion. We will see if that is the case moving forward here. I included a diagonal option strategy in wheat using 2 different months should today’ dip in prices turn into a potential buying opportunity.
Trade Ideas
Futures-N/A
Options-Buy the June Kc wheat 12.00 call and at the same time sell the July KC wheat 13.00 call. Offer the spread at -2 cents. KEN22C1300:M22C1200[DG]
Risk/Reward
Futures-N/A
Options-the cost to entry here is 2 cents or $100.00 plus all commissions and fees. The risk however is unlimited in theory as one is long a June call and short a July call. As one enters into the trade as a spread, one should exit as a spread. The goal is to see the long call get deep in the money above 12.00 prior to June option expiration on 5/20. I would hold onto the spread through 5/12 (USDA WASDE report), or as market conditions dictate. It would be advisable to put a buy stop at positive 8 cents, which would risk approximately $500.00 plus all commissions and fees.
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