MGEX Premium Stays Strong

I happily exited most of my long MGEX/short CBOT position today....why? Because I fear that CBOT will outpace MGEX in a rampant bull market. Those fears are likely misplaced, but after the experience last summer, better safe than sorry.

The nearby calendar spreads on the KC and MGEX stayed out at elevated percentages of full carry. CBOT, however, could see March/May widen out to 32-35 cents premium for May, so there's still some room in that spread from the current 28 cents. I remain surprised at the disconnect between the bullishness on the outright market and the lack of interest in holding the front end...

Re-Weighting Rolls On...

Re-weighting conting to pressure the CBOT wheat contract, today driving the MGEX March premium to $1.05. While the CBOT gets sold off on the closes (since last Friday), the cash Hard Spring Wheat market looks very strong narrowing the cash/futures basis and moving to over $1.50 premium to Soft Red Winter Wheat. Sweet.

Calendar Spread Puzzler

I can't figure out why there is so much pressure on KC March/May right now. The KC future is strong on an intermarket basis relative to MGEX and CBOT, but is the least "wanted" on the calendar spreads. While it is entirely reasonable to figure that March KC will go into delivery at 100% of full carry, it isn't at all clear why it should get to that level now--or before MGEX and CBOT.

Re-weighting of the GSCI is keeping the pressure on CBOT Wheat and Corn ahead of the big USDA report this week. I don't know if I will keep the Ethanol and Oats trades on through the USDA report. But at least for another day.

GSCI Re-Weighting: Trade of the Day

The CBOT wheat sold off about 7 cents over the last minute driving the spread against MGEX to new highs.

KC wheat spreads still available at 80% of full carry for March/May--and that's using 2.25% for financing (though no delivery charge). This is an essentially free option on wheat tightness.

The GSCI re-weighting had less impact on Corn, though a strong close in Feb ethanol puts that trade near the top end of its recent range.

Adding to KC Calendar Spreads

Since I think the bottom for KC March/May is around 12.5 cents (premium May) and more likely only 11.5 cents, I added to my calendar spread position today--though i didn't get many at 9.75.

Just holding on to the long MGEX vs CBOT.

Not So Busy Here...

At least not busy in wheat. I have my long MGEX intermarket spreads and they are performing pretty well for now.

I thought I was smart being long Oats vs Corn, but that fell back today. If anyone knows why, I would appreciate a comment.

GSCI Re-Weighting at End of Week

MGEX wheat has been stable against CBOT for a few weeks now with a premium mostly in the low 80 cents/bushel for March futures. With the cash market for Hard Spring Wheat at around $1.30 premium to Soft Red Winter and the carry costs much higher for CBOT, there should be pressure to increase the March MGEX premium. Also, the annual GSCI re-balancing starting Friday should put further downward pressure on March CBOT. The re-balancing should also serve to depress Corn relative to Ethanol and Oats which are not in the GSCI index. (Wheat and Corn outperformed last year and so are currently overweight in the index and will be reduced.)