Last Thursday’s export sales report showed 344 thousand metric tons of wheat was sold last week for future shipping, down 11% from the week prior. A quick look at the buyers list showed a lineup of feed quality buyers with Mexico in for 45 thousand, South Korea 39, Ecuador 35, and Italy 30. These small amounts are countries buying hand to mouth as needed for their feed ration. We need weekly export sales of 1 million metric tons weekly to be bullish at which point we will find buyers in for at least 350 thousand, buying wheat high enough in protein for human consumption. New crop wheat sales for the 2016/17 marketing year beginning June 1st were 66 thousand. Clearly old and new crop sales suggest importers are waiting for new crop results before piling in. The new crop looks to break dormancy in a big way late March with April and May determining the quality and levels. Should the crop emerge greeted by sunny warm days and timely rain we could become the number 1 port of origin for high quality milling wheat for human consumption amid soaring demand. Should weather be foul, we could be faced for a 3rd year in a row being a country to buy only feed quality wheat. The shorts in the market have all the profits and all the risk. Noncommercial funds came in this week short 123,000 contracts. Kansas City hard red winter wheat came in short 42,189 contracts which is a record. We saw short covering off of the week’s lows last Thursday suggesting funds are getting nervous about the short side of the market. Last week we recommended buying calls on a break in the market. I suggest that you use all corrections as a buying opportunity. The state by state crop conditions report for the month came out. It was a mixed bag of percentages. Kansas, our number 1 winter wheat producing state, came in at 59% good to excellent condition versus 55% in January, Oklahoma 68% vs. 74%, Montana 53% vs72%, Nebraska and South Dakota both increased. The trade makes note of the state figures but generally doesn’t trade them, and waits for the USDA to come out with their first crop condition report of the year after dormancy breaks.
Those looking for some bullish upside exposure may consider the following trade. I would consider buying the July wheat 5.00 calls while selling the July 440 put for a cost of 5 cents. In cash value this would cost $250.00 plus all commissions and fees. The risk on the trade is the price paid for the options plus all commissions and fees. Additional risk lies at the 440.0 level basis July futures. If July futures settle below 4.40 at option expiration, one would be long a July Wheat futures contract at 4.40 if the option is exercised.
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
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.
