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Option Recommendation 04/07/2022


We recommended buying wheat puts this morning. Our clients grow:

  • Hard Spring Wheat traded at the Minneapolis Grain Exchange (MGE)

  • Hard Red Winter Wheat traded at the KC Board of trade (KCBOT)

  • Soft Red Winter Wheat traded at the Chicago Board of Trade (CBOT)

The reason we recommend buying puts is our market plan uses puts to capture the price increase after the crop is priced with a HTA contract with your cash grain buyer. We recommended pricing the Soft Red Winter Wheat too low. To capture some of the money between where it was sold and where the futures are now, buy put options bushel for bushel sold on a HTA. We also think the high is in on Spring Wheat and Hard Red Winter.

However, the spring wheat is not planted and the hard red winter crop is in poor condition with dry weather still in the forecast.

The war in Ukraine may last all year or it may be over tomorrow. Regardless, it is old news. Until the port of Odessa is destroyed or all the wheat and corn there is set on fire, there will not be any more bullish wheat news than what we already have.

The market is expecting huge reduction in wheat production in Ukraine and the remaining old crop is unavailable as long as the war lasts. That is old news. There is a dab of wheat and corn being railed to Romanian ports.

In the big picture, only brearish news will come from Ukraine.

If the wheat is destroyed, it will be one or two wicked up days and then back to where we were when the news broke. The market has already priced that Ukrainian wheat out of the market.

Furthermore, India and Australia harvested the best wheat crops ever and they are exporting more than ever. Those two origins have the enough wheat to cover Ukraine's remaining old crop exports. If the world needed more wheat for export, those in need of wheat would be buying wheat from the supplier of last resort; that would be USA, whose wheat export sales are 24% less than a year ago and falling further behind every week.

Which of the three classes of wheat have the most downside potential?

Soft red winter wheat got planted timely, mild winter with snow cover in many areas. Take a look at the chart of winter wheat conditions. Red is marks hard red states and and green marks the soft red states. the Condition rating as of Sunday evening:

No matter what class of wheat you grow, we recommend you buy soft red winter (CBOT) wheat puts.

Even you have spring wheat or hard winter wheat contracted at the elevator, ask your merchandiser to buy the soft red wheat puts. The worst that will happen is he will say "no", in which case do the KC wheat, but do NOT buy spring wheat puts. Wait for a more clear weather situation.

For those of you think outside the box once in awhile, do you have corn or beans sold too cheap and you are waiting to buy puts? Wait no more and buy CBOT wheat puts now. They will probably make some 20 to 80 cents before it will be time to buy corn puts.

As we recommended this morning, buy September puts when the futures is near the top end of its trading range. This chart was as of last evening. September CBOT wheat is $10.28 now.

For option quotes, we recommend one of these two websites:

Click on “Market Data”

Drop down window appears, click on “options”

Click on Corn E for corn options

Click on Soybean E for bean options

Click on Wheat E for soft red winter wheat options

Click on KC Wheat P for hard red winter wheat options

Click on Minn Wheat P for hard red spring wheat options

Near the top is a row of drop down boxes; at the right side is “Near the Money”

Click on the arrow in the “Near the Money” box, click on “Show All” there you go... But there is no delta on this quote page.

Delta is the percent of price change for an option relative to the price change of the underlying futures contract.

If an option's delta is 0.4, that means for every 10 cents the futures moves, that option's value will change four cents.

For options quotes with the Delta values included:

At the far right side, the world “options” is for each month

Pick your month and click on “options”

Calls are on the left, puts on the right

At the top of each column is its title; you can see the delta for calls & puts.

Let us know if you have any questions.


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