Commentary
With all the attention being paid to the war in Eastern Europe and rightfully so, issues with the winter wheat crop at home are surfacing here and causing some concern in my view.. Its true that the Black Sea usually accounts for 30 percent of the global wheat export market, Its a big reason why the market challenged 13.00 on the Board in both KC and Chicago. However international tenders for wheat of non Black Sea other origin are starting to surface, Therefore a short winter wheat crop in North America should it occur, could mean that tight global stocks get even tighter amid the current Black Sea export shutdown. Winter wheat conditions continue to disappoint, with Kansas, Oklahoma, and Texas releasing their updated State Crop Progress reports yesterday afternoon. Kansas & Texas both saw a one-point drop from last week, coming in at 24% and 7% good/excellent, respectively. Oklahoma did see a 4% increase from last week, though that improvement only brings them to 15% good/excellent. These ratings are subjective which is something to keep in mind, meaning a few good rains in drought stricken areas can improve the ratings in a hurry in my opinion. Forecasts call for just ¼ inch of rain possible over the next 5 days in Northern Kansas, and very little rain for the Southern half of Kansas, Oklahoma and Texas. The 6 to 10 day models show hot temps with below normal precipitation, with the 8 to 14 day about the same, hot and dry.
Tomorrow at 11 am we have our supply and demand report from the USDA. The trade sees ending stocks near 628 million bushels with the range of 569-to 658 million bushels. World numbers are seen near 277.5 million tonnes versus 278.2 million in February. The option pricing I’m seeing on the KC wheat board is peculiar in my view. Consider today’s settlement. The June 14.00 call settled today at 53.4 cents with 72 days to expiration. The July 16.00 call, ($2.00 higher) settled at 54.3 cents with 107 days to expiration. It maybe worth a shot to enter into a spread here, should one think that wheat’s path of least resistance is higher given the many unknowns that exist in the Black Sea and domestic production.
Trade Ideas
Futures-N/A
Options-Work to bull spread the KEM22c1400/KEN22c1600 at even money. One is buying the June 14.00 KC wheat call and selling the July KC wheat 16.00 call. The June options are not carrying much if any open interest as it stands now, but I think that may change once April options roll of the Board on 3/25/22.
Risk /Reward.
Futures-N/A
Options- Risk 15 cents form entry or $750.00 plus trade costs and fees. Cost to entry if filled at even is zero dollars plus commissions and fees. Note: As we enter as a spread, we exit as a spread as the short call has its expiration 35 days longer in duration than the long option.
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