Wild MGEX

When the nearby 2 month spread has a price range equal to 7% of the underlying commodity, that's pretty wild.

While I have been very positive toward the July MGEX, I don't know where the price support comes from at these levels. Is there a real shortage of old crop spring wheat? Not in any USDA accounting I've seen. There could be quality issues that cause higher protein grades trade to larger premiums, but July $1.40 over Sep? I just don't have the boots on the ground to say whether supplies of 13.5% protein are that hard to find (or to get in position for delivery).

Farther out on the calendar, MGEX looks more reasonably priced. I've bought some Dec MGEX at 35 cents over KC and even out to July12, where I've added July MGEX at 80 cents over CBOT. Normally, I wouldn't consider 80 cents over CBOT to be a bargain, but if this July is $3 premium and the new crop spring wheat is not great while new crop soft red winter wheat looks plentiful, then 80 cents should be a great bargain... we'll see about that.

Lastly, I like being long Sep KC versus CBOT. September KC will be the first contract there with the tighter contract specs on protein and vomitoxin levels. While there may be large HRW crops coming in around the world, we can be pretty sure the crop here will be small and that the SRW crop will be large. I see the CBOT Sep/Dec going out to a full carry which will be very large, while KC could catch a bid due to the new, stricter protein specs--if protein levels are driving the current July MGEX craze, then Sep KC should improve vs CBOT.