No Miracle Close Here...

Strong USD, higher interest rates, good weather...nothing remotely bullish for wheat in today's news. After holding KC July10/July11 spreads for some time now at full carry (around 3-3.25% yield with delivery/re-tender), I pitched that position out. Too much risk of higher financing rates, too much much risk of a storage rate change, too long at the price to be considered a bargain.

I put on a new long ethanol/short corn spread. Ethanol margins are back close to 6 month lows--close to breakeven for most producers-so not much incentive to bring on new capacity. At he same time, the calendar spreads for ethanol indicate tighter inventories--the curve is almost flat from July to December. There is a possibility the blend wall (maximum ethanol mix) will be raised from 10% at some point this summer. Even with gasoline down almost 20% in a month, it is still very profitable to blend as much $1.60/gallon ethanol as possible into that gasoline. Since there is a lot of uncertainty around the likelihood and timing of a blend wall increase, I think it will have a very positive impact on ethanol prices should it come to pass. Even if the limit stays at 10%, US corn-based ethanol is still economic vs sugar-based Brazilian product, so exports should continue and imports will be almost nil.