Monday’s crop progress report for wheat showed 45% of the crop was in good to excellent condition, unchanged from the week prior and well over last year’s 30%. Key producers like Kansas came in at 30%, Oklahoma at 36%, and Nebraska at 36%. Better conditions were seen in Colorado at 53% and Texas 56%.
WXRISK.com, the Ag weather site, softened their forecast that previously called for the next 15 days to be excessively wet in the western wheat belt with up to 8 inches of rain falling in Northern Texas and south east Colorado. Reports showed that it will be warmer and drier in the 6 to 10 day forecast in the major wheat producing states. Wheat grows well in the western wheat states because it doesn’t like a lot of rain, its angle hair root system lies just under the surface and with this current excessive rain creating an overly wet top soil, wheat can run into disease problems quickly.
The wheat complex however is experiencing a second day of weak prices in spite of heavy rains and flooding in Texas and Oklahoma over the weekend. It could be that some of the most destructive rains were east of wheat territory, and there were enough beneficial rains to suggest that the recent price rally had been “over-done” especially given the stronger Dollar. Also, global weather forecasts in other wheat producing countries like Russia for instance seem to be less worrisome.
Non-commercial funds enter the week short 85,000 contracts and trend following funds short 105,000 contracts.
Wheat is not the only market poised for a short covering rally, soybeans have dropped .75 cents the last three weeks with non-commercial funds short 71,000 contracts and trend following funds short 34,000. They are fat with profits and any hat tossed in the ring will be used to cover shorts on several fronts, one the weather forecast calls for rains up to 3-4 in the Midwest in the 6-10 day forecast and the 11-15 day forecast. This creates fear that corn planting will slow and maybe switch acres over to beans, there is much talk in the market that bean acres will come in at 1-2 million acres more than the March 31st acreage update. Two, when we return next week there is only four days left in the month; the funds short with profits can pay up to 2% bonuses on profits taken before the month’s end. As bearish as beans look they are poised for a short covering rally.
Option Trade
Those looking for some short term trades on potential short covering might want to consider these option positions. Look at buying the July 9.50 call for 7.4 cents or $375.00 cost. My second trade proposes buying the July Wheat 5.30 call for 6 cents or $300.00 in cash. The risk on the trade is the cost for the trade plus all commissions and fees.
Free Webinar
For those interested in grains, Walsh Trading’s Senior Grain analyst Tim Hannagan hosts a free grain webinar each Thursday at 3:00 pm central time. Tim has been ranked the #1 grain analyst in the United States per Reuters and Bloomberg for his most accurate price predictions for soybeans and corn in the years 2011 and 2012. Link for next week’s webinar is below. If you cannot attend live, a recording will be sent to your email upon signup.
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.
