Along with the other grain markets, wheat spent the day probing new recent lows. The premium for May MGE over CBOT ranged from about 25 1/2 to 27 cents/bushel. We were able to flip 20 contracts for around 1/2 cent (2 ticks) each net. It's small, but almost 1% of MGE May trading, so it's not nothing. Now if we could just scalp 1% of the forex market for 2 ticks....
No posts tomorrow, it's a day off.
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Nice blog, tinbox, I read it daily. I guess the VSR impact is a one-time shock that will have it's affect as we progress through the summer and into early fall? The market should then gradually reflect the additional storage costs, if there are any, as we approach every delivery period going forward, correct?
ReplyDeleteYeah, that's more or less what I think will happen. It's hard to predict with any certainty the actions of the "passive" commodity index holders--and the traders who front-run them.
ReplyDeleteFor commodity index investors, wheat exposure and its costs are relatively tiny factors in choosing whether to buy, sell or switch investment vehicles. So it's not at all clear that they will respond quickly or rationally to higher storage costs--they may just ignore them for quite some time.
Also, assuming the CBOT price goes into a steep contango, it is not clear whether the further months get pushed up or the nearby months get pushed down--though the whole point is to force the front end down toward the cash markets. I think ultimately VSR will succeed in pushing the front end down, but as always, the tricky thing is determining not just the end result, but also the path the market takes getting there.