Stronger Beans, Wheat Pulls Corn Higher
Jul 29, 2010
Corn, beans and wheat continue to bounce off technical support. Some solid exports in beans but concern about wheat continues to spill over into the corn complex. Continued concern about the Russian wheat crop has sellers on edge. The July 2011 wheat contract appears ready to test the $7 level. With the carry that currently exists in the market, the potential for solid profits is looking stronger for wheat. I’m already getting questions from producers whether they should sell next year’s wheat because wheat growers are now going to resume planting when just 60 days ago they thought they were going to stop for 2010. The end result is wheat stocks will stabilize and the corn market will have to work harder to get the 90 million acres it needs planted next year to rebuild corn stocks.
My suggestion is all wheat producers need to be looking real hard at locking up inventory. I like the strategy of buying July $6.60 puts at 67 cents, then sell $5.20 puts for 12 cents. If one assume the cost of production is around $5.50 for 65-bu. wheat. An $8 call would represent around 45% return on investment. Remember, if the market does go higher your cash is worth more which neutralizes the risk of the short call.
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