While other commodities started out strong on the back of better-than-expected payrolls and stronger prices in Asia, wheat flopped after a higher opening and was quickly in the red. As we have seen all week, the CBOT led the way down stretching its discount to MGE, but the intermarket spread move against KC was quite small. While MGE May futures hit 20 cents over CBOT (up over 8 cents from Tuesday), KC May futures stuck around 6-6.5 cents over CBOT (up 3 or 4 from Tuesday).
The calendar spreads did move to steeper contangos, proving yesterday's trading decision correct. The CBOT spreads could move to bigger contangos still--it does not appear to me that the futures market has fully digested the new VSR regime.
On the intermarket spreads, I am still long MGE and KC vs short CBOT. The hard wheat is very cheap on a historical basis and the new, higher CBOT storage fees and right now, the weak outright market, should force the hard wheat premiums higher.
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