Trade Summary: June 30, 2014

June 30, 2014

 

 Trade Rationale

With the attention precious metals and oil have been garnering recently, it’s easy to forget about the other major commodities. In fact, agricultural commodities never seem to get all that much press.

However, there was a game-changer today in the grains market and we’re going to try to capitalize off it.

First off, the US Department of Agriculture released several key crop reports today. Basically, corn inventories were significantly higher than expected, while soybean acreage was also well above expectations. This bullish supply news crushed the prices of grains. Corn is down about 5%, soybeans are down 3.5%, and wheat is down about 3%.

So what does all this mean?

Well first off, it should mean lower prices for food companies. Lower prices on crops all tend to lead to lower prices of fertilizers as well. Finally, it seems like wheat is down in sympathy with corn and soybeans, but wheat supply was actually a little lower than expected. So, wheat could be in store for a bit of a rebound.

Regarding lower prices on food companies, we’re going to purchase calls on cereal giant Kellogg (K). The company could definitely benefit from lower costs on inputs (grains).

Next, let’s buy puts on Potash (POT). The fertilizer company is near the top of its trading channel and could see pressure on its prices with the decline in grains prices.

Finally, we’re going to bet on a rebound in wheat prices. The price of wheat is near its 52-week low and isn’t showing the same supply glut as corn and soybeans. We’ll buy wheat using Teucrium Wheat (WEAT).

Those are the three trades we’ll be using to take advantage of the big selloff in grains today. Keep reading for the details of each trade.

 

Trade Details

#1) Buy Kellogg (K) September $65 Calls up to $2.75

We’re looking for a higher move in K. Our first profit point for conservative traders is at $68. For aggressive traders, you can hold up to $70. For risk control, the conservative exit level is $62. $59 is the final exit level for aggressive traders.

#2) Buy Potash (POT) September $38 Puts up to $1.80

In this case, we’re looking for POT to move lower. Our first exit point for conservative traders is at $36. For aggressive traders, you can hold to $34. For risk control, the conservative exit level is $39. And, $41 is the final exit level for aggressive traders.

#3) Buy Teucrium Wheat (WEAT) August $14 Calls up to $1.00

For WEAT, we’re looking for a higher move. Our first profit-taking exit point for conservative traders is at $15. For aggressive traders, you can hold up to $16.50. For risk control, the conservative exit level is $13. $11.50 is the final exit point for aggressive traders.

 

Category: AOA Trade Summary