Exiting Early

I am writing this wrap-up a little early because I have exited my intermarket MGEX/CBOT spreads. With the cash Hard Red Spring wheat trading $1+ over Soft Red Winter wheat, it looks like the March MGEX/CBOT spread has a lot of room to run from the current 65.5-67 cents. So I might be leaving this winning position too early--and I may eventually jump back in to go long the MGEX at even higher levels.

But this spread has had a 25 cent move over the last 10 sessions as the CBOT March contract has dropped a dollar. This kind of move cannot be explained as the impact of the VSR: too much, too fast, and no corresponding calendar spread moves. I don't think we are moving into a bear market with a lot of downside, so I don't want to depend on continued CBOT liquidations to pry the MGEX/CBOT spread to higher numbers. Rather, I fear that speculators will come back into the grains and the MGEX premium will (initially at least) get squeezed.