Lots of Excitement around July MGEX

I have been noting a number of factors which pointed to tightness in the prompt MGEX contracts. The futures market seemed to just take notice over the last couple of days. Hooray!

But are we going to run out of spring wheat over the summer? No. Sure, the market will be rationing spring wheat through price, but to me that means we should see a stronger impact on intermarket spreads and maybe not so much on the calendar spreads. July MGEX traded 10-15 cents over Sep for most of the day, which is not wildly overvalued--but also not without risks. The same July MGEX traded up to over 50 cents premium to KC.

While it's possible that there will be big squeeze on July MGEX futures-it's not a very large market and perhaps there's not much deliverable wheat available--there isn't a big shortage of spring wheat in North America right now, so the calendar spreads don't seem like a great game to play at this point unless you have truly comprehensive physical market information. On the other hand, it seems to me that there is still plenty of upside on the intermarket spread versus KC. Dec11 MGEX is only about 10 cents premium to KC; if there is a sustained move to higher protein premiums, that should be a great level to buy MGEX vs KC.