Disclaimer: there is risk of loss trading futures and options. Past performance does not necessarily indicate future results. This is our opinion and should be treated as such.

We think grains as a whole have plenty of potential, but we feel this is a good area to manage your risk in the wheat market.

There are plenty of routes you could take, whether you are simply making an incremental cash sale here. Or if you are using options to cover your downside risk.

One thing we like doing is selling the increased implied volatility. As the market is giving you a good opportunity to collect that high premium and essentially having an offer to sell your wheat a lot higher if it gets there. Keep in mind selling options does require margin.

As an example:

$11.00 Dec KC wheat calls are 16 cents
$13.00 Dec KC wheat calls are about 7 cents

Below are some hedge & re-ownership strategies we like based on whether you are making a sale and want to keep your upside open, or if you want downside protection for unsold wheat:

1) If you do not want to make a sale: downside protection strategy

Sell $9.50 call
Buy $8.20 to $7.20 put spread
This gives you a floor of $1.00 under $8.20. With the potential to sell $1.00 above the market
Cost is about even money

2) If you made a sale and want to keep your upside open: re-ownership strategy

Sell cash wheat and re-own
Buy $9.50 to $11.00 call spread
Sell $7.50 put
Cost is about even money

If you have questions or want to talk through your specific situation and put together a strategy please feel free to reach out to us anytime.

Office: (806)484-1214

Those of you with spring wheat, you could consider cross hedging with KC wheat. For more info on this give us a call.

Reason for Alert: KC Target Hit

Dec KC Wheat 🌾

KC has hit our first target of $8.50

That is the implied move from this cup and handle pattern we broke out of that we have been talking about for the last several weeks.

The $8.55 level is also the golden fib and 161.8% retracement from the July lows up to the May highs.

We of course don’t have to stop here, but it’s a good area to do something. As we are now +$2.20 off the lows from July.

One other thing to note is that we do have some slight bearish divergence on the RSI as well.

Prices clearly made new highs, but the RSI has not made new highs vs the July highs.

This of course does not mean wheat cannot keep pushing. Because it can. But given this along with hitting the target is enough of a reason to be considering managing some risk up here at multi-year highs.

Wheat was trading under $5.00 last fall. It’s at $8.50 now.