Why All the Love for KC Wheat?

As I reduce exposure to my long July MGEX vs CBOT position, I have added dribs and drabs of long MGEX/ short KC. At first I bought some Dec MGEX at 10 cents over KC. Then looking at the potential for steeper contango in the KC market (their storage goes to 9 cents/month starting in July, while MGEX stays at 5 cents), I decided that buying July MGEX vs KC was more attractive--especially at today's 16-18 cent premium for MGEX.

Is the Hard Red Wheat crop in bad shape? Sure. Is there going to be such a shortage of it that KC goes to a premium to MGEX? That may happen, but it won't be strictly due to an actual shortage. The KC futures are trading at over $1.00 premium to cash, while MGEX futures trade at a substantial discount to cash. So I think the July MGEX will stay at a premium to KC, these cash/basis relationships bear watching...