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Commentary
Winter wheat futures climbed to the highest mark in over two months due to concerns over production in the Black Sea and the Plains as frigid U.S. temps could hurt crops. Bitter cold temperatures over the past week over areas lacking sufficient snow cover put 15 to 20% of the U.S. winter wheat crop at risk of damage in my opinion, although the market will not receive the status of any possible damage until late March/early April. Most central and northern areas have sufficient snow cover to protect the wheat, but southern areas do not. The Black Sea Region is also expected to see readings drop below -20° F in some areas in the coming days. Multiweek highs were forged last week, which are at the top end of the three-month trading range. State-by-state condition ratings next week might show a struggling winter crop amid recent weather conditions, though a move above the October high could be a tall task. The bull needs to be fed here in my view to get the 94K Chicago wheat shorts to short cover.
Trade Ideas
Options-Buy the April Chicago wheat 6.00 calls for 5 cents OB.
Risk/Reward.
Options-The risk here is the 5 cents or $250 plus commissions and fees. In my view I would get a few calls on the cards. The weather the next two weeks is still bitter cold amid spotty snow cover both in the US and Eastern Europe. We still have potential geopolitical issues with Russia/Ukraine and Iran. There is a major short in the market and some unknowns in the market unfolding. Don’t get me wrong, the World is awash in wheat ending stocks, but futures are a forward-looking mechanism, with the 25/26 winter wheat harvest production numbers becoming more of a variable. If one algo starts screaming “fire in the theater!” managed money shorts may all go running to cover. Offer the option at 40 cents to exit for a gain of 35 cents, less trade costs and fees.
Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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Walsh Trading
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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.
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