Grain Spreads: Short Covering in Wheat

Please join me every Thursday for a free grain webinar every Thursday at 3pm Central. We discuss supply, demand, weather, and the charts.   Sign Up Now

Commentary

Strong gains in all wheat classes with prices closing near the high of the day. Weather and the uncertainties they bring right before Soft Red winter wheat harvest in the Eastern Belt and Hot and dry conditions in Europe brought funds that are now short wheat reasons to cover. Record breaking heat now seen across the European Union with little rain seen for the next 10 days across the major crop growing regions, this in our view will certainly take the top off the crop across France, Germany, Poland and into the Baltics but it’s not a disaster with the crop close to maturity. That said, US maps have major rains for soft red winter areas that are not good and we are starting to hear rumors of more more quality issues in Missouri, Kentucky, and the delta. Rumors swirling in Indiana, Ohio, and Illinois as well as record rainfall in some areas have caused crop quality concerns. Funds short 80K contracts currently of Chicago wheat. Weather leans bullish in US soft red winter and the EU. I see more fund short covering to continue. With this in mind, I suggest the following trade.

Trade Ideas

Options

Buy the August wheat 6.50/7.00 call spreads for 7 cents or $350 plus commissions and fees.

Risk

The cost and max risk on trade is $350.00 We suggest risking no more than 4 cents upon entry or $200 plus trade costs and fees. Offer the spread at 25 cents to exit, for a gain of 18 cents, less trade costs and fees.

If you would like to receive more information on the commodity markets, please use the link to join our email list Sign Up Now

Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

312 957 8103

888 391 7894 toll free

312 256 0109 fax

slusk@walshtrading.com

www.walshtrading.com

Walsh Trading

311 S Wacker Drive Suite 540

Chicago, Il 60606

Walsh Trading, Inc. is registered as a Guaranteed Introducing Broker with the Commodity Futures Trading Commission and an NFA Member.
Futures and options trading involves substantial risk and is not suitable for all investors. Therefore, individuals should carefully consider their financial condition in deciding whether to trade. Option traders should be aware that the exercise of a long option will result in a futures position. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. The information contained on this site is the opinion of the writer or was obtained from sources cited within the commentary. The impact on market prices due to seasonal or market cycles and current news events may already be reflected in market prices.PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. All information, communications, publications, and reports, including this specific material, used and distributed by Walsh Trading, Inc. (“WTI”) shall be construed as a solicitation for entering into a derivatives transaction. WTI does not distribute research reports, employ research analysts, or maintain a research department as defined in CFTC Regulation 1.71.