Wheat has rallied at the expense of corn and beans as crop troubles globally have funds reentering the market on dips. Non-commercial and Non-reportable traders are long over 51 K contracts in Chicago while these same traders are long 46 K of KC wheat, data from the COT showed as of July 31st. Chicago wheat over corn settled basis Dec 18 futures settled today at 212.0 wheat over. This spread has rallied 95 cents in over 5 weeks, with the near term high of 2.26 Dec wheat over, the high of the move. We settled spot Sep Chicago at weekly resistance at 574.4, a half penny above last years high. Next target is a trend line at 590.6 then 6.00. Sep KC wheat has resistance 596 and then a major trend line at 608. Support for Sep KC is at 577. A close under in my view and 556 is next. In my view watch these levels. Friday 8/10 is the USDA monthly supply/demand report. It is our first surveyed report for corn and beans, with all eyes on domestic and global ending stocks for wheat. The report could set the tone for the next 60 days until harvest. While wheat has pushed higher on the potential of sizable losses in global production, a better than projected ending stocks for US wheat could provide some profit taking and back and fill here. I’m just am not sure what is considered priced in here due to global weather issues (drought). I would trade the charts on whether to be a seller on these rallies, especially the Dec wheat/corn spread as that spread could see a major move higher or sizable retracement. Longer term I believe that higher prices will result in higher planted wheat acres as my colleague Steve Bruce pointed out in his article today. With this in mind consider the following options trade especially if you are a wheat producer.
Buy the May KC wheat 19 580 put for 22 cents.
For every put bought sell 2 KC wheat 820 calls for 13 cents apiece.
Spread cost is a collection of 4 cents ($200.0) minus commissions and fees. This is very high risk, but for the producer if one has the wheat, one may not mind being short calls at 8.20 on a percentage hedge.
Please join me each Thursday at 3 pm Central time for a grain and livestock webinar. Sign-up is free and a recording link will be sent to your email.
Call me at 888 391 7894 or email slusk@walshtrading.com