Grinding Through the Cheap Wheat

Following up on yesterday's idea that wheat is very cheap compared to corn and therefore seeing extra demand, we saw CBOT wheat get dragged higher with corn today. While Dec CBOT wheat did not improve versus corn (it dropped another 7 cents/bushel), Dec CBOT did outperform its counterparts on the MGEX and KC. The market moves today showed that substitution versus corn is pushing the low-protein end of the wheat spectrum higher.

At the high-protein end of the spectrum, July MGEX still trades at 30 cents over Sep and there are 1100 open contracts with only 1 week to the last trading day. So, at the bottom there is demand for CBOT and at the top there is but limited supply of MGEX. In the middle, there is no love for KC--while the Hard Red Winter wheat crop will be small in the USA, the KC contract is competing seemingly large crops from the FSU for export sales. As it sounds, I am long MGEX and CBOT against the KC.