Wheat Update and Some Chat on Rice Futures

I topped up the long July MGEX vs CBOT intermarket wheat spread yesterday at the dip on the close. And over yesterday and today, continued to liquidate, painfully and reluctantly, the short corn positions against CBOT wheat and oats.

I started to put on a long July MGEX/short KC wheat position today but was too shy to pay much over a 25 cent premium for MGEX. I only got a little bit and then I took the day-trade profit as the premium neared 30 cents. There is a similar case for this position as my current MGEX/CBOT spread. The reason I lost my nerve on this is that it concentrates too much risk on the MGEX contract when added to the existing positions.

Considering the turmoil and fighting in the Middle East and North Africa along with the ongoing disaster in Japan, it's surprising there is so little volatility in commodity markets over the past few days...

Though I try to stay focused on wheat trading in this blog, I have been doing some trading in CBOT rice and it's been... ummm, fascinating. The basic story is that March/May rice traded out to full carry and I thought I could make a little extra by taking delivery. As I got more involved in watching the spreads in rice, the July/Sep spread went to what appeared to be shocking levels for the carry trade. It took a couple of weeks for me to hear back from the exchange after I asked about changes in contract specs (and google searches didn't help). Anyway, there are new specs going into effect there on September 1 which will impact the valuation of warehouse receipts from the Sep contract onwards--though it won't affect the eligibility of any receipts. The effect will depend on the particular receipts with the highest quality specs being hit the hardest --something like a 4% hit to the values there. So everyone should be trying to unload their high quality rice receipts before September, because after that you won't get nearly as much premium for the the "head count." My guess is that the July/Sep spread there could be quite volatile since the worst case pricing is around 95 cents premium Sep, but there is no certainty over the receipts you could get. The typical receipt would be worth about 40 cents less if delivered in September, so that would put the July/ Sep spread at around 70 cents for full carry.