Wheat, and Wheat Spreads, Bouncing

It didn't take much to get the calendar spreads like Dec10/July11 moving back to backwardation. July wheat was up about 3-4% on the day, which is about the price variation we see now in the first 15 minutes of trading on the CBOT, and that was enough to convince the market that buyers would pay a premium for the privilege of holding wheat in storage for 7 months. Hmmm, we'll see how that works out for the holders of CBOT shipping certificates for the period.

On the intermarket spreads there was much less movement. KC and MGEX are both holding slim premiums to CBOT so far through this 2 day rally. Since the wheat rally is based on the idea of huge US exports to North Africa/Middle East, it will be interesting to see how much export "pull" there is on cash Soft Red Wheat. The DTN cash indexes for Hard Red Winter Wheat and Hard Red Spring Wheat bottomed out vs. Soft Red Winter Wheat in the first week of this month and have since rallied about 40 cents on the spread. Yet with HRW still 30 cents under SRW, it still looks cheap.

The argument for the relative strength of SRW in the cash market was that it was being held back by the high storage rates implied by the CBOT. With the CBOT now having swung all the way to backwardation for Dec10/July11, it is hard to see why SRW should command a premium in the cash market as the implication is that the SRW will come out of storage.