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Commentary
- Wheat pulled back from a managed fund type of short-covering last week, both in spreads and in flat price today. The volume chasing it lower was less than the volume that had chased it higher in both markets. Open interest is down therefore it suggests to me that it was merely a short covering rally that gave money managers the opportunity to re-short the market on a rally. This type of action has been commonplace for Chicago wheat going back over 3 years as managed funds have been net short consecutively for three plus years according to CFTC weekly data. I believe that weekly pace over three years to be a record. Good moisture on the Southern plains also pressured recent longs while prospects of better Russian production hit the wires along with Indian exports. After a slow start, Russian wheat exports have run above year ago levels since November. Additionally, Sovecon raised their estimate of the coming Russian 2026/27 wheat crop to 85.9 MMT from 83.8 MMT. India approved 2.5 M t of wheat exports and 0.5 M t of wheat product exports, adding new supply to global markets. Managed funds were net sellers of 3.9k contracts in CBOT wheat (net short 86k) and 10.7k KCBT wheat (net short 19k) while being small net buyers of 1.9k contracts in MPLS wheat (net short 19k). This is setting up as rinse and repeat in wheat in my opinion.
Trade Idea
Options-Buy the 540 April Chicago wheat put for 14 cents OB.
Risk/Reward. The maximum risk is 14 cents plus commissions and fees. Risk no more than 6 cents from entry or $300 on a GTC stop loss and look to exit the put option at 28 cents for a gain of 14 cents.
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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