Dec MGEX Wheat Up and Away...Thanks, and I'm Out

The premium for Dec MGEX over CBOT expanded from less than $1.70 to over $2.30 in 4 sessions. Taking a step back, we can see that over that 4 day period, MGEX rallied 30 cents while CBOT dropped 30 cents. While there has been some speculation that the MGEX rally is due to a smaller than expected crop coming in, the changes in the calendar spreads are somewhat mixed.

Taking a further step back, we can see that the CBOT price drop is a continuation of a month long 20% drop in the wheat market. Obviously that isn't due to expectations of a small crop. The wheat market drop seems much more due to the general commodity environment, where there have been significant liquidations of speculative long positions. In fact, the COT report shows that as of last Tuesday, "managed money" was short about 25,000 CBOT contracts.

To me it seems that the CBOT wheat is oversold. The USDA report due out on Friday may clarify crop size issues. Today's price action may show an "outside-day reversal"-- CBOT wheat made new lows, but finished higher. There may be a very good bullish case for Dec MGEX wheat, but I am not convinced it is better than the case for CBOT wheat at these prices. I'm flat.