Still Waiting for the Rally

Because the CBOT wheat contract typically sees higher volatility, the hard wheat/soft wheat spreads often act as bull/bear spreads driven by the overall direction of the wheat market. While we generally prefer being short the CBOT on spreads against KC and MGE, it can be painful during market rallies when the CBOT's trend-following shorts pay up to cover. So we've been waiting for wheat to bounce to put on new positions. It hasn't bounced much.
The USDA numbers were mildly positive for wheat--slightly smaller leftover old crop. The big number was a hike in the amount of corn used for ethanol. Didn't really move corn much--or ethanol. In fact the small rallies in grains could be explained by the weaker USD rather than any buying on USDA fundamentals or short-covering.

Anyway, intermarket spreads didn't move much and we are still looking for a bounce--even going home long July CBOT/ short KC. The DTN cash Hard Winter Wheat index, for the variety normally delivered to KC, has weakened to $1.16 under July KC. That is only 1.11X the cash corn index. At those levels wheat should start getting included in animal feed. You can probably make ethanol out of it at those levels. A basis level that weak is very painful for farmers (hedged and unhedged) and indicates a futures contract that is not serving its main function effectively.