Ag trade ideas

Long ZM Q19/U19 @ 0.3.

-US/China Trade war may increase demand in soymeal during the coming season. Oil World says China will have to turn to US supplies of soybeans soon, but they may as well start importing more soymeal ( from Argentina most likely )instead of crushing it at home.

- Low historically.
 
Went Long KW H19/K19 @ -12.

-Near historical full carry( but VSR now )
-Near H18/K18 levels whereas Stocks to use is much smaller this year
-12% + protein will be in shortage at the end of the season
-Contango too deep compared to May/Jul19 intercrop spread
 
The shape of H/K is directly linked to the "jump" between K old crop and N new crop. The bigger the jump is, the more you are likely to see H/K flat or even inverted, independently from the level of actual stocks. On the other side, Z/H is purely a storage and stocks play, so IMO the most straightforward way to eliminate the curvature risk is to make a +H-2*K+N butterfly. The risk is that the intercrop spread get even bigger because of the current shape of wheat crops around the globe( Think Russia, Australia, Germany ), but they are close to being fully harvested and wheat is already expensive. So it might be a good idea.

I chose to simply do the H/K because it is close to historical carry( VSR can go further but...) and the world will lack 12% protein soon ( according to a "physical" friend ).

I don't trade options, so I don't know if there are some better way to hedge using them.
 
TraDaToR said:
The shape of H/K is directly linked to the "jump" between K old crop and N new crop. The bigger the jump is, the more you are likely to see H/K flat or even inverted, independently from the level of actual stocks. On the other side, Z/H is purely a storage and stocks play, so IMO the most straightforward way to eliminate the curvature risk is to make a +H-2*K+N butterfly. The risk is that the intercrop spread get even bigger because of the current shape of wheat crops around the globe( Think Russia, Australia, Germany ), but they are close to being fully harvested and wheat is already expensive. So it might be a good idea.

I chose to simply do the H/K because it is close to historical carry( VSR can go further but...) and the world will lack 12% protein soon ( according to a "physical" friend ).

I don't trade options, so I don't know if there are some better way to hedge using them.
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That's a great explanation of your rationale for the fly. Thanks!
 
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