A Strategy for Wheat
If you have already sold 2018 wheat crop, or intend to forward sell expected production for 2019, consider establishing a long position. We will look at why wheat prices may rally, and how owning with futures or options now could be helpful in either adding value to sold wheat or in preparation to make new-crop sales.
Since mid-November, when futures consolidated for two weeks, prices have gradually moved upward. The larger trend is sideways with a price bottom for July Chicago futures on November 27 at $5.17 and a high on October 16 at $5.62. Projected world inventory declined from 279 million metric tons in 2017/2018 to 268.1 million metric tons for the upcoming year. That, coupled with poor weather for winter wheat plantings, and the stage is set for a price recovery. Add a smaller crop out of Europe and Russia (wheat exporters), and the picture suggests increasing U.S. export share. To date, sales have been slow in coming. Our bias is that they will pick up in the months ahead as Russia drains its exportable supplies.
To retain ownership of old crop, consider purchasing March Chicago futures near $5.20 with an upside objective of $5.70. If desiring a fixed risk position, purchase March call options, which will give you the right to own futures for well more than two months. If wanting more time, you could purchase May or even July options. The marketing year starts July 1, so May is the last old-crop contract to work with. If you choose July, keep in mind old-crop contracts could gain value faster than new crop.
For the 2019 crop, you are probably wanting to forward sell prior to harvest as wheat prices usually move lower into summer. Sometimes it is difficult to pull the trigger on sales, especially if prices are showing strength. Yet, wheat prices have a tendency to change direction quickly. One week prices can look strong, and the next week the bottom falls out. To stay disciplined, purchase call options now and set target prices to forward sell. When futures do rally and trigger sales, you have these contracts covered with calls. Bottom line, people are emotional and too often have the best intentions and don’t follow through. You may tell yourself you are going to sell, yet often as prices heat up, discipline goes out the window.
Every year is different. In recent years, strong price rallies have been limited due mainly to large world inventories. The upcoming year suggests increasing price volatility. A good strategic plan will go far in a volatile environment. Trying to outguess price movement is challenging, to say the least. Prior planning prevents poor performance and now, while prices are low, is the time to plan.
If you have questions or comments, contact Top Farmer at 1-800-334-9779, ext 129.
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Reproduction of this information without prior written permission is prohibited. This material has been prepared by a sales or trading employee or agent of Stewart-Peterson and is, or is in the nature of, a solicitation. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Stewart-Peterson. Stewart-Peterson refers to Stewart-Peterson Group Inc. and Stewart-Peterson Inc. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with both companies. Accordingly this email is sent on behalf of the company or companies providing the services discussed in the email.