I have been trying to add to the intermarket position, long hard wheat vs short soft, as the market has settled a bit over the past 2 weeks. The levels are not as attractive as they were in the peak chaos during the first week of August, but there is, perhaps, a smaller chance of being forced out of the position. I still favor the intermarket spreads as being more less directional than the calendar spreads, at least from now going forward.
While I do not have a crystal ball to predict Russian weather, I think wheat market participants will look back at this summer's run-up in prices and see them as primarily technical (large non-commercial short position in June) and political (Russian domestic decision to suppress exports) rather than driven by physical supply and demand.
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What are your thoughts on the market (specifically MW) getting back to a contango situation. I've been theorizing that it's just a matter of time before the market starts pricing in large carrying charges (two big crops in a row have led to a ton of supply), but we may remain flat/inverted if there there are a large amount of HRSW exports in the near future. What are your thoughts?
ReplyDeleteI don't have any contacts in the physical grain market, nor do I have any experience in trading physical grain, so I'm not the guy to ask about HRSW exports.
ReplyDeleteCertainly, there has been a trend toward cash HRSW outperforming Soft Wheat since the market peaked on 5 August (http://www.mgex.com/charts.html?page=mspread&cc1=IP&spr1=IPY10&mon1=Y&year1=10&cc2=IW&spr2=IWY10&mon2=Y&year2=10&size=b&den=high&jav=adv&data=A&expm=0&date=082410&code=xmri&org=com&crea=Y&sprd=Y&button=Create+Spread), but that could be due to a lot of different factors.
Your idea about HRSW being the preferred wheat for export is supported by the performance of the nearby Sep/Dec spread where the MGEX is the only exchange trading at less than the cost of carry.
Right now, the KC contract is the only one where Dec is premium to July11. And in the KC Wheat the basis is very weak and the nearby Sep/Dec is over 100% of exchange cost of carry, so there doesn't appear to be much demand for physical.