MGEX Shows Some Stength

Last week I was moaning about how the MGEX contract had not strengthened versus the CBOT wheat despite the rapid fall in CBOT corn prices. It seems to have taken a few days, but we may be seeing that effect now. CBOT wheat has continued to fall (following corn), while the prices for MGEX wheat seem to be stickier and reluctant to fall as fast. So on contracts such as Dec MGEX we are now seeing new highs on the MGEX/CBOT spread.

Dec MGEX contracts have stayed in a narrow range versus KC over the last 3 weeks, closing today near the middle of that range. This supports the theory that CBOT wheat, being the cheapest substitute for corn, and trading at an historically huge discount to corn is the weakest sector of the wheat market and can continue to fall with corn.

Trading CBOT wheat versus corn continues to be interesting. Surely nearby CBOT wheat will trade at a large premium to corn again--eventually. But the trade is very, very expensive to carry; the deferred futures price this in. Still, Dec CBOT at less than 1.15x corn is very cheap wheat. With the July CBOT wheat at less 0.95x corn, I a not going to buy it on the way down, but it is worth watching for the eventual turn.