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Commentary

Wheat markets have broken out to the upside today with strong buying due to increasing geopolitical risks, slow HRW harvest, and increasing Russian attacks on Ukraine. While the world is focused on Israel and Iran, the tensions have given thoughts to increased demand near term.  Additionally, weather forecasts have shifted to a hot/dry pattern for the Western EU wheat producing regions with the high temps seen across French and German wheat areas. Chicago July wheat took out the April, May and early June highs today and have reached 50% retracement resistance to the mid-February highs. With funds heavily short, today's move certainly puts them on the hot seat and could result in further short covering over the next several days. The technical outlook is bullish in my opinion. On the production side, there is excess rain in some parts of the Southern Plains during harvest and concerns about falling quality reside in Oklahoma. In another supportive news, the Russian grain region of Krasnodar has now issued a grain state of emergency due to dryness, following the same declaration in the Rostov region last week. LSEG left their Ukraine production number unchanged but said dry weather is threatening and the crop could be reduced down the road. Russia added its own concerns as the Krasnodar region declared a drought emergency. Rostov declared one last week. this brought in some buying early in the morning session into the Paris market that spilled over into the Chicago and Kansas City contracts with Minneapolis wheat following. It is my belief If one wants to be long, I would consider the following trade in KC wheat below. Keep in mind the bull play in my view needs to be fed in wheat, so I'm suggesting a position that is very conservative in my opinion.

Trade Ideas

Futures-N/A

Options-Buy the December KC wheat 7.00/8.00 call spread for 8 cents or $400 plus commissions and fees.

Risk/Reward

Futures-N/A

Options-The risk is the price paid for the call spread plus trade costs and fees. I would risk no more than 6 cents from entry or approximately $300 plus commissions and fees. Place a target to exit at 40 cents for a gain of 32 cents less trade costs and fees.

Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

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