Back to the Intermarket Wheat Spreads

Apparently, I couldn't stand the easy life being long July MGEX/short CBOT wheat, so,as I mentioned last week, I have been shifting to long July MGEX/short KC. While the trend is certainly strong on the former, I think there will be less volatility and better value in the latter.

I'm as bullish on July MGEX as anyone, but being short July CBOT wheat which is nearly even with corn doesn't seem risk free. And we were around $1.50 premium for MGEX today, so while that could be a lot higher, there could be more than a few cents on the downside.

Compare that to owning MGEX at 12-13 cents premium to July KC. Could it go to a discount? Sure. But I don't see MGEX staying at a discount. There won't be any shortage of hard red winter wheat in the first new crop month on KC. On the other hand, old crop July MGEX is nearly even with new crop September. Throw it the usual protein premium for MGEX and the changing contract specs for KC (July will be the last chance to deliver low-protein, high vomitoxin wheat on the KC) and everything I see favors MGEX.