Medium term
/
Buy
Trade view / 22 August 2017 at 12:04 GMT

Trading a wheat bounce through spread to corn — #SaxoStrats

Head of Commodity Strategy / Saxo Bank
Denmark
Price target: 1.15
Market price: 0.745
Saxo Strats banner
 
Background

Amid record Russian wheat production and with dwindling time left to upset the crop prospects in the US, December CBOT wheat prices have dropped 25% during the past months. Funds have chased the market lower, while potential buyers have stepped aside, waiting for the washout to run its course. Wheat is now oversold, and we look for a rebound through a spread to December corn.

Management and risk description

Wheat's premium over corn (both December) has collapsed by more than $1 during the recent selloff, and this contraction has primarily been driven by weakness in wheat, as the chart shows. Having reached a spread of $0.75/bushel — a previous level of support — and with the 9-day and 14-day relative strength index (RSI) on wheat both oversold, we initiate a long wheat versus short corn spread. We look for a target of $1.15/bu, with a stop below $0.60/bu.

Parameters

Buy ZWZ7-ZCZ7 at the current market price around $0.75/bu, with a target of $1.15/bu and a stop loss at $0.60/bu

Trade ticket example:
Trade ticket
 























Short-term chart
December CBOT Wheat corn spread
























Long-term chart using first month cont.
CBOT Wheat vs Corn spread, First month cont.
 

Time horizon: 1 month


— Edited by John Acher

Non-independent investment research disclaimer applies. Read more
A compiled overview of Trade Views provided on TradingFloor.com is found here
22 August
ChristianK ChristianK
not able to do this trade. "request rejected by broker"?
22 August
aslan.g aslan.g
Same here, "request rejected by broker"
22 August
Georgio Stoev Georgio Stoev
sorry for the inconvenience everyone. it appears we have a technical issue we are looking to resolve asap. You can call into Saxo and place it through a representative.
23 August
Georgio Stoev Georgio Stoev
We have now fixed the issue and the ticket takes the order. Apologies again.
23 August
ChristianK ChristianK
How do you enter the stop and limit levels? In the platform the position shows up with short corn and long wheat positions?
24 August
Georgio Stoev Georgio Stoev
the functionality to close a spread from positions will be added in PRO next year. To close out of the spread today just bring up the same pair and enter into offsetting transaction, e.g. sell to close.
24 August
ChristianK ChristianK
got it. thx
25 September
Ole Hansen Ole Hansen
Wheat (ZWZ7) regained its $1 premium over Corn (ZCZ7) last week but has since retraced lower to $0.94/Bu. The expected pick up in momentum in ZWZ7 above $4.5000/bu failed to materialise last week as ample global supplies continue to weigh. On that basis we chose to close the spread trade that was initiated on August 22 below $0.74/Bu.

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