I sat here watching the hard wheats, MGE and KC, strengthen vs CBOT wheat for the first 80% of the day--typical down day with CBOT down the most of the three. Both MGE and KC strengthened to a bit over the levels where we exited last week, causing me some anxiety about the difficulty of re-entering at worse levels. Then the markets turned, rallied the last half hour, and closed near unchanged with the hard/soft spreads at the smallest premiums of the day. So...no harm done by being out of the market today.
In addition to my concern that CBOT wheat will rally fastest in an up market-particularly a bull market driven by inflation fear/excess liquidity- I have been puzzling about the impact of the BP oil spill on grain movements. I made a sarcastic comment in April on how there was a limit to the discount for KC wheat as long as the Mississippi kept flowing to carry the wheat for export; while I haven't seen any news to indicate port closures, I have to wonder if traffic won't be significantly affected at some point. Finally, I don't know how reduced Gulf of Mexico shipments would affect the intermarket wheat spreads.
We have had an outright long position in ethanol for a couple of days. Ethanol is very, very cheap against gasoline, but I don't want to short gasoline against it. It is pretty cheap against corn too, but I don't want to bet a lot on margins improving there. So we'll just hold the ethanol and see what happens in corn and gasoline. May/June ethanol futures did trade out to a full carry last week, but have since tightened to inside the cost of storage, perhaps indicating a bit of real demand.
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