Weekly export sales came in at 282 thousand metric tons for wheat; this was down 25% from last week and 23% under the 4 week average.  Japan was in for 94 thousand, China 59, Columbia 38, and Mexico 31.  These small purchases clearly show buying feed quality wheat hand to mouth as needed at a discount.  The new crop season is getting underway, though the last two years show the U.S. harvested a poor conditioned crop more suitable for the feed ration than human consumption.  This year may be different, thanks to El Nino.  This weather pattern looks to bring adverse weather conditions to export competitors of ours worldwide, while the US crop is 19% planted and anticipating a good growing year thanks to El Nino, countries like Russia, the Ukraine, Australia, and the European Union all experiencing poor weather conditions during early planting.  Since El Nino is a long term weather planner that is not likely to change during early planting, puts the U.S. in the eyes of traders as a number one port of origin of high quality milling wheat in the future.  Note, wheat value is determined by quality not by quantity, since corn is grown for animal feed quantity is more important than quality. This is not the case for wheat.  Traders may not be ready to own wheat but may not be ready to short wheat.  Non-commercial funds are short 56,000 contracts, trend following funds are short 53,000 contracts.  Should they cover all of these short positions, wheat can rally $1.50. 

With a potential rally in mind I propose the following trade. For long term bullish exposure I would look at buying the March 2016 6.00 call and selling the March 2016 wheat 7.00 call for a purchase price of 7 cents or better. The risk on the trade is the price paid for the spread which in this case is $350.00 plus all commissions and fees. The maximum one would collect in this scenario is $5,000.00 minus all commissions and fees.

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. Or please contact me at anytime at  slusk@walshtrading.com

Sign Up Now

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.