Commentary
Wheat rallied over 30 cents in all classes today posting a third weekly gain in the face of bearish elements in my view. These include the dollar’s rally to 20-year highs amid advancing harvest progress for the Spring wheat crop in North America. That said it potentially suggests Chicago wheat has established a near-term bottom and may work higher. Stepped-up market skittishness over possible disruptions of Ukrainian grain shipments contributes to the bulls’ case. Per Pro Farmer, The Kremlin said on Friday President Vladimir Putin and his Turkish counterpart Tayyip Erdogan will discuss implementation of a deal on Ukrainian grain exports when they meet in Uzbekistan next week. Putin earlier this week criticized the deal and said it may need to be reworked. Russia’s Foreign Ministry said on Friday the deal is being fulfilled “badly” and its extension will depend on how it is implemented, Russia state-owned RIA news agency reported. USDA WASDE report will be out on Monday, normally this is not much of a report for wheat and looking at the trade estimates US carryout is put at 618 million bushels vs 610 million last month and on the world numbers, estimate is for ending stocks at 268.2 million metric tons vs 267.3 million metric tons. It is my belief the big report will be at the end of the month when the USDA will issue the small grains finals and we will see how they put the final wheat production numbers at. Trade idea below.
Trade Idea
Futures-N/A
Options-sell the December Chicago Wheat 11.00/10.00 put spread for 88 cents.
Risk/Reward
Futures-N/A
Options- The max loss on the trade is $5000.00. However, one is collecting 88 cents or $4400 upon entry, which puts the risk at 12 cents or $600.00 plus all commissions and fees. If this is a beginning of a breakout the upside target or 50 percent is up at 10.50. If achieved, it would allow one to buy back the spread cheaper than where we sold it.
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