Wheat export sales came in at 469-thousand metric tons, up 43% from the week prior.  The week prior was a marketing year low.  We had our usual spatter of Asian customers buying small amounts of wheat at a cash discount.  World-wheat buyer Egypt came in for 175-thousand metric tons as part of last week’s US line of credit offered and special incentives.  The announcement of their purchase last week had the market trade 2 to 3 cents higher, then close 11 cents lower, as traders know subsidized exports don’t last.  Wheat remains bearish from a demand perspective, but, in April, the crop will break dormancy in looking for perfect weather to improve poor crop conditions to date.  Then we look for the market to become a weather-driven market building a weather premium.

USDA Report

The USDA report released yesterday was considered neutral to supportive, as ending stocks were revised slightly lower. Ending stocks for the 2014/2015 season came in at 691-million bushels from 692-million bushels last month and trade expectations for 699-million bushels. Seed usage was revised up by 1-billion bushels.

The latest COT reports show large and small speculative traders combined hold a record large, net-short position. As the crop breaks dormancy in earnest as we enter April, traders will want to see near perfect weather conditions that result in high crop ratings and good yields. Remember, the market trades fear before fact, which could ignite some short covering into month end and into the first few weeks of April. I therefore propose the following trade to take advantage of this potential move higher in the market.

The Trade

  • The strategy I would look to employ would call for buying one December Wheat 6.00 call and sell two December 7.00 wheat calls for 4 cents or in cash value $200.00. There are risks with the strategy.
  • The first being the cost of the trade plus all commissions and fees.
  • The second risk is if the underlying futures market trades over 7.00 at or before option expiration, one would be short an extra futures contract at 7.00 in December wheat.
  • Please keep in mind however that long the 6.00 wheat call and short one of the December wheat 7.00 calls would gross $5,000.00 minus all commissions and fees.

#####

For those interested in a free grain webinar with Tim Hannagan each Thursday at 3:00 PM central time, please click here.

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.