Respite or Turnaround?

After a weak opening, MGE wheat futures gained quickly against the CBOT, finishing a nickel stronger on the spread. Neither market moved much in outright terms; MGE a couple of pennies up, CBOT a couple of pennies down. Certainly the CBOT did not appear under a whole lot of pressure--the calendar spreads remained at last week's levels. The MGE did look stronger with the calendar spreads there flattening a bit.

The CFTC COT report did show considerable short covering and assuming further covering after the Tuesday cutoff, the trend-followers look to be about flat at this point. Does that mean that the relative wheat futures values are now at "fair" levels? Not exactly. Perhaps it does mean that we are at more normal levels of distortion due to commodity index positions. But those levels, July11 MGE 5 cents over CBOT, July11 KC at a discount to CBOT, are still distorted-and therefore attractive.