Grain Spreads: KC Wheat Examined
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Commentary
Wheat futures sold off the last two sessions before the long holiday weekend following news the EU was developing plans to utilize “all available lanes” to ensure exports from Ukraine. That was followed by President Putin commenting that there was a chance for a peace deal to end the war, which added more pressure. In my opinion, the selling was also a reaction to news reports of renewed diplomatic efforts from both the US and Turkey to deescalate the fighting between the Ukraine and Russia. We have been hearing about these potentials for years now and so far, it's just noise. Even if the war ended tomorrow, there has been so much potential damage to grain facilities, ports, ships, etc., that going back to "normal" would likely take months if not years. Domestically, cash markets are watching a wet forecast in Canada the next few weeks which could delay Spring wheat harvest in that area. Saskatchewan durum wheat harvest is well behind normal pace at this point. Another important bullish fundamental is the severe drought across the southern Plains. Exceptional drought now covers portions of western Oklahoma, northwest Texas, as well as the Texas and Oklahoma Panhandles, while severe drought persists across southern and southwest Kansas. These are key HRW production areas, where planting typically runs from late August through late October. If drought persists in these areas planting delays ensue, crop could get off to a very poor start. Trade Idea below.
Dec 26 KC Wheat
Buy the 9.00 call
Sell the 930/900 put spread.
Even money entry.
Max risk -$1500. Per spread plus
commissions and fees.
Margin per spread-$1271.00
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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