MGEX Wheat Creeps Higher Against CBOT

Not much to report over the past few days, but today as the MGEX deferred months--July12 and later-- moved up to the high end of their recent trading ranges vs the CBOT, I was a buyer, adding to positions. In all likelihood it is overenthusiastic, but the MGEX reports on stocks in Duluth and Minneapolis show declines from rather low peak levels. So maybe this run-up in Dec/March isn't done yet. Further, I don't see any reason to believe that the $2.50+ premium for Hard Red Spring Wheat over Soft Red Winter Wheat will decline to below $1.25 by July 12 delivery --just as the new winter wheat crop is harvested.

The only thing is that there is already a crowd on the short side of the CBOT wheat boat...

Intermarket Wheat Spreads Steady at Lower Levels

For the past two days we have seen MGEX wheat trade in a broad but well-defined range against the CBOT. In the back months, July has been a bargain around $1.05 premium and a good sale up towards $1.20--Dec12 MGEX has bounced between 60 cents and 75 cents premium. We seem to start an finish the day towards the lower ends of these ranges.

The big picture here is that MGEX wheat remains in a steep backwardation while the CBOT has a substantial carry cost. As long as this situation persists, I am comfortable maintaining an exposure that is long the forward (discounted) MGEX and short the forward (premium) CBOT.

MGEX Wheat Finishes Like the BoSox...

In what seemed a response to generally favorable news from the USDA on Spring Wheat supplies, MGEX dropped the least of the wheat futures ...at least until 1:14 Chicago time. For the deferred contracts, MGEX only fell back to yesterday's levels on the intermarket spreads versus CBOT, but that was a good 15-20 cents fall from midday levels.

At the front end, Dec11 MGEX was weak on the calendar spread vs March12 from the opening. Hard to say what that means, since Dec stayed over 40 cents premium to March. While that's a big drop from 90 cents premium seen yesterday, it's not exactly falling apart.

Going home with slightly lighter positions on the long MGEX vs CBOT in the deferred months.

Fears of CBOT Wheat Short-Covering Are Realized

It was always a danger to my long MGEX/short CBOT position that there would be a sharp rally driven by CBOT shorts. We saw at least part of that rally today. Impact was biggest at the front end of the market with Dec11 MGEX losing almost 50 cents against CBOT wheat. Going out a year, Dec12 MGEX only dropped a few cents versus CBOT.

As I look at the amount of Spring Wheat showing up at the MGEX elevators in Duluth and Minneapolis, it seems that the futures curve backwardation may continue for some time. While $2.70 premium for Dec11 MGEX to CBOT may be a risky place to buy, $1.00-$1.10 premium for July looks like a good bet. I'm in there and I will add cautiously. (Which is unlike how I exit-- which is in a hurry.)

Another Leg Higher on the MGEX Wheat

It's hard to see the commercial reasons for Dec11 MGEX to trade at $3.20 over CBOT and 85 cents premium to March12 MGEX, but that's what traded today. While WheatSpreader notes that the Dec MGEX premium is having an impact on the high-protein end of the Hard Red Winter Wheat market, there still has to be a chuck of anticipated Hard Red Spring wheat that's gone missing for commercials to need to cover at these huge premiums.

Very interesting that it is "commercials" (bona fide hedgers) that are driving this rally. Open interest is very low overall and non-commercial long positions are at quite low levels. Unfortunately, the trading action of the last two days will not be in tonight's CFTC COT report, but that report will be interesting nonetheless.

Link isn't working but WheatSpreader is on Twitter: http://twitter.com/#!/WheatSpreader

Golly, Where's This MGEX Wheat Train Headed?

Dec11 MGEX which was 40 cents premium to March12 at yesterday's open finished at 60 cents premium today. This tightness helped push the intermarket premium for Dec11 MGEX wheat from $2.50 over CBOT up to $2.80. That was enough for me. Just keeping the bargain level back months. Since the front month spread drove most of the intermarket change, the back months--July12 and Dec12--barely moved on the day.

Climbing Back on the MGEX Train

As I predicted last Friday, I am getting back in long MGEX vs CBOT wheat futures. My gut feeling is that I should wait longer, since it has only been a couple of days of correction. But $1.10 premium for July12 MGEX and 65 cents premium for Dec12 MGEX are pretty substantial falls from the $1.50+ and 90+ cents respectively seen last week.

At the front end, it was a little harder to pull the trigger and go long Dec11 MGEX at $2.50 premium, but the Dec11 contract continues to stay at over 40 cents premium to March and very few bushels are showing up at the Duluth warehouses, so we took a shot.

My main worry, as usual, is the speculative short positions in CBOT wheat. So once again I am adding a small outright long tail hedge.