Risk Management Day

I like MGEX wheat, but where to take the risk?

I think being long May/ short July MGEX is very low risk (maximum loss about 5-6 cents/contract) but although DTN cash indexes show cash Spring Wheat at a premium to March futures, that hasn't pulled MGEX March/May into backwardation. So low risk, but perhaps also a low-percentage chance of a positive payoff.

On the other hand, July MGEX is $1.17 over CBOT, while their respective cash markets show $2.50 premium for the hard wheat. So here there is a high-percentage chance of a positive payoff by being long MGEX vs CBOT--time is on our side here. But the downside risk is very substantial: less than a month a ago that premium was only 80 cents and we could easily see that level again.

So I've been trying to take what the market gives me. Friday I took off some March/May calendars spreads at a profit. Today I added to the calendar spread position and reduced the July MGEX vs CBOT position as the MGEX premium expanded almost 10 cents on the day at one point.