See on the daily bar chart for July soft red winter wheat futures (ZWN25) that prices are now just above solid technical support levels that have stopped price declines the past several months. See, too, at the bottom of the chart that the Relative Strength Index is now in oversold territory (below 30.0) and is also very near levels that in the past few months have signaled near-term market bottoms are in place.
Fundamentally, the USDA reported this month that drought in U.S. wheat regions remains a concern, particularly in HRW-producing areas. “Approximately 32 percent of overall U.S. winter wheat production is estimated to be in areas of drought as of April 8,” said USDA. This is up slightly from 24% as of March 4 but well above the same time last year (15%). Drought conditions have improved a bit during the last part of April but are still a significant concern.
It’s my bias that wheat futures markets are close to price bottoms. It’s likely the wheat markets have already factored into futures prices something close to a worst-case scenario for global trade tensions and the impact on U.S. wheat exports. It’s also my bias that the global trade picture will improve in the coming weeks as the U.S. makes new deals with its major trading counterparts. That would be bullish for U.S. grain markets.
Consider buying a call option on July SRW wheat futures, with an upside price objective of $6.00 or above.
The option expires on the third Friday in June.
IMPORTANT NOTE: I am not a futures broker and do not manage any trading accounts other than my own personal account. It is my goal to point out to you potential trading opportunities. However, it is up to you to: (1) decide when and if you want to initiate any trades and (2) determine the size of any trades you may initiate. Any trades I discuss are hypothetical in nature.
Here is what the Commodity Futures Trading Commission (CFTC) has said about futures trading (and I agree 100%):
On the date of publication, Jim Wyckoff did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.Trading commodity futures and options is not for everyone. IT IS A VOLATILE, COMPLEX AND RISKY BUSINESS. Before you invest any money in futures or options contracts, you should consider your financial experience, goals and financial resources, and know how much you can afford to lose above and beyond your initial payment to a broker. You should understand commodity futures and options contracts and your obligations in entering into those contracts. You should understand your exposure to risk and other aspects of trading by thoroughly reviewing the risk disclosure documents your broker is required to give you.
