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Commentary
Wheat found itself with a modest level of speculative buying as the Drought Monitor shows a further deepening of the drought in the Southern Plains. Aside from the drought monitor, the 30-90 day forecast by the NWS predicts “hot” and dry weather patterns for most of the winter wheat areas. The 30–90-day forecast’s success rate is 25% with the September prediction only correctly predicting the heat and dryness of the central/southern Plains. The saving grace to the NWS forecast is the potential existence of La Nina, which is associated with warm and dry periods for the HRW (Hard Red Winter) areas when it’s in place. The CPC predicts that La Niña could be in place through the end of December.
US winter wheat in drought was unchanged this week at 45%, compared to 52% last year. The latest Drought Monitor showed Kansas is mostly free of drought while Texas and central and southern Oklahoma are too dry. Fundamentals do not suggest a major rally but the downtrend since mid-summer is looking tired. The edge may be ready to shift to the bull camp with any minor bullish news. Stochastics gave a buy signal this week and strength in corn and beans may be enough to pull wheat off its bottom. Initial nearby resistance is 507 on December Chicago, then 513. Chicago and KC are forming weekly reversals in my opinion to finish the week.
Trade Ideas
Futures-N/A
Options-Buy the May 2026, 6.00/7.00, call spread for 9 cents or better.
Risk/Reward
Futures-N/A
The maximum risk of buying the call spread at 9 cents is $450 plus commissions and fees. I would risk no more than 5 cents or $250 per spread plus trade costs and fees while using a GTC sell stop @ 4 cents on the spread. Work an offer to sell the spread at 40 cents to exit for a gain of 31 cents less trade costs and fees.
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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