Economic Outlook Various Blogs

Wheat and Corn Shortages are Coming

Due to the war in Ukraine a worldwide food shortage is expected. Ukraine is a major exporter for wheat and corn and Russia is a major fertilizer exporter. The ports for Ukraine are blocked. Odessa is blocked by the Russians on Snake Island. Global buyers were banking on India as a wheat producer for supplies after exports from the Black Sea region plunged following Russia’s invasion of Ukraine in late February. Prior to the ban, India was targeting to ship out a record 10 million tons this year.

India banning Wheat Export

And India banned wheat exports on Saturday days after saying it was targeting record shipments this year, as a scorching heatwave curtailed output and domestic prices hit a record high. The Indian Meteorological Department (IMD) defines a drought year as one in which the overall rainfall deficiency is more than 10 per cent of the long period average and more than 20 per cent of the agricultural area is affected. Because of the interplay between a natural drought event and various human factors, drought means different things to different people.

Who are the biggest Wheat Exporters

Russia is the biggest exporter of Wheat and this might one of the few products they can export. The US and Canada are falling due to draught conditions and longer lasting wintery conditions. Ukraine might be knocked out until further notice. India banned exports to keep food prices in their country low. It is bad news! Only Australia seems to be doing well this year. Only minor areas with below average precipitation. Most areas are well moist. There is no draught in Australia and I expect them to do well for that reason.

Midwest Drought

1 to 4 inches of rainfall were observed across western and southern portions of the region with higher totals in extreme southwestern Missouri. Abnormally Dry in Minnesota and Kentucky as well as in areas of Moderate Drought in Iowa. Average temperatures for the week were below normal (1 to 6 deg F) across most of the region except for areas of Minnesota and northern Wisconsin where temperatures ranged from 2 to 10 deg F above normal. According to NOAA, average temperatures were below normal across the region during April, with Minnesota experiencing its 10th coldest (-5.5 deg F anomaly) and Iowa its 13th coldest (-4.3 deg F anomaly) April on record. In terms of precipitation, above-normal precipitation for April was observed in Minnesota (7th wettest), Missouri (40th wettest), Wisconsin (35th wettest), and in Michigan (24th wettest). Since the beginning of the cool season (October 2021), precipitation was above normal across the entire region with the greatest statewide precipitation anomaly observed in Minnesota (7th wettest).

The draught in the Mid West of last year has improved conditions for farmers. The US will export huge amount of Wheat in 2022. Food prices will further go up due to rising energy costs. The draught conditions in the West persist.

What to do about it?

The Teucrium Wheat Fund, symbol WEAT, is showing some momentum even though the RSI is hitting Overbought levels. If it breaks above $13.00 you might buy it on the next retracement.

Chicago Board Of Trade Says Corn Hits $7.83-1/4 A Bushel, Highest Since Sept 2012. Also here we see momentum to the upside. I know, many traders say the CORN and WEAT reached its upper range and will descend from here on but I might disagree. The war in Europe, the draught conditions and Indians ban on export let me conclude that Wheat prices will ascend. I am long on CORN and I am confident it will break the 30 dollar level.

Open Interest are very low compared to major ETFs. If you want to go long on the $30 CALLs chose a longer time frame. DTE about 180 – 240 days. On the other hand we can sell a Call at $34

Short Call

I think the market is bullish on wheat and corn but we want to sell a lottery ticket. Lottery tickets barely win. How do we do that?

When we change the “CHANGE SHORT CALL” to 101% it places the Short Call at $34.00. In the whole data set of daily closing prices over a period of 5 years there is not one case in a 4 week period where the underlaying is gaining more than $4.02!!! That’s why it says “PROBABILITY OF LOSS”= 0.00%. 1 contracts = 100 shares = $0.20 for 17June CORN Strike 34,

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