Wheat--A Bear Market that Makes the Euro Look Strong

A weaker USD, rising equity/risky assets, Bernanke vowing to drop cash from helicopters, stronger corn and bean prices--none of it stopped wheat from making fresh lows. The calendar and intermarket futures spreads were very little changed and we liquidated most of our positions. There are USDA numbers out tom'w morning and we weren't in our short KC/ long CBOT positions for the long term anyway.

Both the KC and CBOT July/Sep spreads are trading at about 3 cents beyond exchange storage costs. Delivery and re-tender costs me 2 cents, so I'm not doing anything in it right now. There are 2 more days in the Goldman roll period. If we can get something like a penny more than the market is offering now (net 2 cents), we can buy July/sell Sep and lock in 2.5% at worst. The yield will be higher if we trade out of it earlier or roll again Sep/Dec, amortizing the re-tender costs over a longer period--something closer to 3.9% if the market is priced similarly in Sep. On a July/July11 carry, one could lock in 3.5% after costs right now. That's pretty high, but there is some risk that the KCBT could change their storage rates in similar fashion to the CBOT's VSR--remember, the VSR was instituted to fight the large cash/futures basis that the KC is currently experiencing.