Commentary
Wheat futures are higher on reports of strong global demand as well as continuing concerns over Ukraine disruptions in my opinion. Saudi Arabia purchased 625,000 MT of optional origin wheat. Iraq purchased 100,000 MT of wheat expected to be sourced from Germany. Jordan tendered to buy 120,000 MT of optional origin milling wheat. So traditional world buyers aided today’s rally in my view with the recent buying spree. USDA reported 297,341 MT (10.9 million bu.) of wheat inspected for export during the week ended March 31,down from 343,087 MT the previous week. Expectations ranged from 250,000 to 550,000 MT. Demand for US origin is weak at best for old crop, but that may change later this year given world events and weather. Seeing is believing as far as domestic demand is concerned. Keep in mind the last week of March saw Chicago wheat lose 1.17 amid month and quarter end profit taking. Russia continues to export, 4 out of their 5 export ports working just fine with Egypt the featured buyer. The question moving forward is the Spring plant in Ukraine. How much if at all will be planted? Minneapolis futures have the potential in leading the market higher and it does look like the spring wheat contract will take over leadership of the complex with planted acres not expanding per USDA in my view. This comes as a possible low crop carry in for the new crop balance sheets that will see weather/yields now driving the flat price as well as basis and spreads. Canadian plantings for spring wheat will now be the next issue for the high protein market with both KC and Chicago following in tow. It could be the current uncertainties here that lead the wheat market higher from here. This assumes the war in Eastern Europe remains. Putin then Medvedev have both said they could limit the supplies of Ag products to “friendly countries” only. This comes after Putin’s demand to be paid in rubles for energy. Will this type of ruble demand spill into Ag? Will see. Keep in mind that All wheat planted area is estimated at 47.4 million acres, up 1% from 2021. If realized, this represents the fifth lowest all wheat planted area since records began in 1919. Trade idea in Chicago Wheat below.
Trade Ideas
Futures-N/A
Options- buy the June Chicago wheat 11.00 call and at the same time sell the July Chicago wheat 12.00 call. Enter the spread at even money.
Risk/Reward
Futures-N/A
Options-lots of risk here as one is long a June call and short a July call 1.00 higher. This is a volatility play in that we are looking for the long call to gain in value to the short call over time if the wheat market rallies. One is advised to risk 10 cents upon entry on the trade which is approximately $500.00 plus all commissions and fees. Note-as we enter into the position as a spread, one needs to exit as a spread. Once does not want any naked option exposure in wheat given current market conditions.
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