I Better Find a New Job

After a brief rally, from about $1.80 premium to CBOT up to $1.95, the March MGEX has fallen back below $1.80 premium. Back to the level where we began the year. Actually, back to the same level where we began the fourth quarter of 2011. Well, I guess that's a win for equilibrium...

The MGEX wheat has been a bit stronger out in July, but not in any convincing kind of way; the premium for March MGEX has declined while the discount for March CBOT has been reduced--both forward curves are flatter, so the intermarket spread for July is closer to the March spread. My guess right now is that the CBOT curve has flattened because of the non-commercial short positions rolling forward--that should be just about done at this point.

I would like to be bullish on the ethanol market which is quite cheap relative to both production costs (corn) and end user alternatives (gasoline), but there seems to be quite a glut on the physical markets. It's not clear to me how even a spike up in gasoline prices would drag along the over-supplied ethanol market; a gasoline spike (due to supply shortages) would only reduce consumption of the blended gasoline/ethanol product and so would reduce ethanol consumption, possibly leading to even lower prices.