DISCLAIMER: THERE IS A POSSIBILITY THAT I COULD BE WRONG.

Minneapolis Grain Exchange seats are cheap. Everyone should buy one...and then buy one for a friend.

Wednesday, July 28, 2010

All Russian Drought ,All the Time

Wheat went higher again; Sep CBOT now up 35% from June 29. CBOT gained a couple of cents against KC and MGE. The calendar spreads flattened a bit. Same market dynamics that have prevailed over the last 20 trading days.
Posted by at

5 comments:

  1. BMHJuly 28, 2010 at 1:33 PM

    well things definitely started to quiet down a bit then BAM we are up 20 cents in wheat and spreads are coming in like there is no tomorrow (deja vu all over again I thought). Was happily surpised to see that the spreads stayed "fairly" tame during the whole ordeal. Was actually planning on bullspreading uz a few days ago based on the fact that there could be another squeeze but for some reason or another I couldnt justify it considering I thought we had already squeezed everybody out.

    Will bearspread zh tomorrow

    ReplyDelete
  2. tinboxJuly 28, 2010 at 2:38 PM

    While the Sep/Dec CBOT is forced to full carry by the impending rolls from both the index longs and the new spec longs, the Dec/March could leave you out of the money for some time. I agree that between now and November the Dec/March will go to a steeper contango than we see today, but it is looks like a very directional trade right now--as you say, a bearspread.
    It looks to me like growers are happy to sell July11 and the trend-followers thrilled to buy Dec10, so there could be days (weeks?) of pain. Aside from the "risk management" aspect, it's a great opportunity.

    ReplyDelete
  3. UnknownJuly 29, 2010 at 9:30 AM

    I'm a grain marketing consultant and I assist producers in MN and the Dakotas with their marketing programs. I have a number of sizeable wheat clients who would like to sell MWN1 for summer delivery. Today, I'd advised them to place hedges in the MWZ0 contract given that carry has tightened from .40+ to .24. The gameplan would be to roll these hedges out to July 11 when carry widens back out to .30-.40.

    Given that it's not a guarantee that carry will widen back out, my clients will have to be comfortable with the price and logistics of delivering on the Dec 10 contract. But I feel there's a pretty good chance that we'll get an opportunity to roll the contracts to July at a better carry (due to overextended rally?, another big HRS crop, large overall wheat carryout).

    Nick Horob, Market Wise Ag Services
    nickh@marketwiseagservices.com

    ReplyDelete
  4. tinboxJuly 29, 2010 at 2:25 PM

    Thanks for the comments Nick,

    It sure seems to me that this is an excellent time to bring those hedges forward. (Overnight the CBOT May11/July11 spread traded in backwardation, May premium.)

    Do your clients still have the cash/futures basis risk, though now only til December? I'm assuming they have to sell to a grain dealer and then buy back their Dec futures hedges. Any thoughts on the prospects for that cash HRS basis? From what I've read, that basis continues to weaken as the futures rally.

    ReplyDelete
  5. Nick HJuly 29, 2010 at 3:11 PM

    Most of my cients have basis risk associated with their hedges (until they decide to sell cash grain and buy back the futures hedge). Basis is very weak. In some areas basis weakened $.70. I'm not bullish on a basis improvement in the short-term as there are plenty of deliverable stocks of HRS in Duluth (25mm+ bushels currently vs 3mm bushels last year at this time) and a very good crop coming.

    Most of my clients have on-farm storage so we've previously rolled a lot of harvest hedges (Sep 10) to summer delivery (May/Jul 11) in hopes of improved basis at that time. It'll be very interesting to see how the basis relationship develops in the Minneapolis HRS market in light of issues with CBOT wheat market.

    ReplyDelete

Subscribe to: Post Comments (Atom)