Commodity, Futures, Forex and Everything in Between

Long term wheat trade possiblity

YOU MUST ALWAYS BE AWARE THAT THERE IS SIGNIFICANT RISK INVOLVED IN TRADING FUTURES AND/OR OPTIONS ON FUTURES AND ARE NOT SUITABLE FOR ALL INVESTORS.

On January 12th the USDA will give us the first look at winter wheat seedings. Many in the trade believe that SRW acres could be off significantly. The rationale behind this idea is that for the last couple of years Midwestern producers have had poor quality SRW. Many producers are saying nuts to growing SRW anymore as their crop prices have been discounted deeply due to the poor quality. Yes, global wheat stocks are rebuilding, but historically are still low. A way to play for the possiblity of low acres is to Buy July CBOT wheat and Sell March CBOT wheat. The July contract will gain on the March contract if the acres seeded are on the low end of expectations. July can still gain on March as the March contract represents old crop and old crop is of poor quality. Recently old crop wheat prices have been relegated to tracking the feed market as that is the only outlet for low grade wheat. The US is coming off of a record size corn crop. The US pipeline is plugged with corn. Corn stocks are more than ample. The unknown around the new crop wheat commands a premium over old crop. A bolder move for this idea of low SRW acres is to buy the July CBOT contract outright. Technical support shows up against the $3.15 level. If this method of trading is selected closing sell stops below $3.08 would have to be employed for protection.
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YOU MUST ALWAYS BE AWARE THAT THERE IS SIGNIFICANT RISK INVOLVED IN TRADING FUTURES AND/OR OPTIONS ON FUTURES AND ARE NOT SUITABLE FOR ALL INVESTORS. XX

posted by Tom Fritz @ 2:30 PM