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The Black Sea conflict continues to help wheat perform well relative to other crops. FESCO, a Russian shipping company, suspended applications for shipments due to the increased risks. Until the waterway is fully re-open, the world’s largest wheat exporting region is going to face logistical hurdles bringing the crop to market. Wheat was supported to end the week as the media reported two cargo vessels in the Black Sea were attacked by Russian forces. This remains a very real issue as we actively see vessel traffic slowed, and analysts back off their Black Sea export thoughts. US export sales have not been great, but that is taking a back seat to events overseas. The impact of the European heatwave is becoming more evident, with the U.K. expecting the smallest grain harvest since 1984, while French crops down over 20 percent year on year. Despite all of this, Managed funds while long KC wheat are short Chicago, even as exports in the Black Sea remain in peril. Global fundamentals seem to be strengthening in my view, with the 50- and 100-day moving averages holding this week and stochastics in oversold territory threatening to turn higher in my view. Long term trade idea below.
Trade Idea
Options-Buy the December Chicago wheat 660 call. Sell the March 2027, 730/670, put spread. Bid even money upon entry. Margin is $1723.00 per spread.
Risk-the maximum risk here is 60 cents or 3K upon entry plus commissions and fees. However, I would risk no more than 30 cents from entry or $1500 per spread plus trade costs and fees. We project that Dec wheat has the potential to trade up and through 7.00. Should that occur, we suggest exiting the spread at 50 cents, for a gain of $2500, less commissions and fees.
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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