We almost have it right. The market is rallying and hard wheat futures are outperforming the soft wheat futures. But for reasons unknown, KC is outperforming the harder Spring Wheat futures on the MGE. It appears that the elevators that are certified for KC delivery are enjoying huge margins. This may be the same dynamic that led to very wide cash/futures margins at the CBOT over the past few years and also very high levels for CBOT futures versus other wheat futures.
Last week's CFTC COT report showed some selling by commodity index funds. So far this week, I've been surprised that the CBOT, with its big non-commercial short interest, hasn't rallied faster. I've been afraid to short the CBOT on a spread against MGE because I expect there will be stop-losses triggered that drive up the CBOT price. I will be looking at tomorrow's CFTC report to see if the shorts are standing pat or if commercial sellers or index sellers are offsetting the short-covering.
We added a bit to our long MGE exposure today- some against KC, some against CBOT.
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Nice blog. Has been a wild week in the wheat market.....unfortunantly I did not get bearspreads put on in u/z chicago at as good a level as yourself but did manage to put them on around there. Have taken the last portion of them off after today's action. Could see another vicious tightening in that spread before roll.
ReplyDeleteIts a no brainer to have bearspreads on in chicago at least until the vsr has been triggered to the next spread. I think it is extremely dangerous to have bearspreads on after that, especially at those wide levels as there is no incentive to press it further by the commercials and the only pressure is coming from roll paper which seems to be getting taken pretty easily as locals cover their bearspreads.
The commercials are then crazy not to lock in those massive carries and a strengthening basis only provides further incentive for them to cover and reverse at those wide carries.
Key seems to be bearspread ahead of roll....stay on the sidelines during roll and look for great levels to get bullspread.
Looking forward to keeping up with your blog
Thanks, BMH.
ReplyDeleteI think the KCBT will be facing a lot of criticism from producers (farmers) over the $1+ basis on July hard red wheat. The commercial hedgers make up a significant part of the KCBT business and they cannot be happy. It seems the CBOT has exported their cash/basis problem to the KCBT by instituting the VSR --which keeps cash soft wheat in storage and off the market.
I think the KCBT will have to respond eventually.
Agree completely. Its only a matter of time before KC decides to implement VSR, which has me cautious getting overly bullspread in KC although I doubt it would even take effect until later next year.
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