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Option Recommendation 04/07/2022

Wheat


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.

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