Posted by: usset001 | October 14, 2010

A Tale of Two Spreads – Wheat and Corn

Dec'10/May'11 wheat futures spread

A week ago I posted a comment on inter-delivery wheat spreads in Chicago. I contrasted the movement of December wheat prices (sharply higher in July and trading in a broad range since then) to movements in the December/May wheat spread (a large carry in late June, trading to an inverse in early August, and now back to the same large carry). Conclusion? Inter-delivery wheat spreads are an indication that the bull move in wheat is over.

Then came the October WADSDE report and all hell broke loose. Wheat futures are 70 cents higher – but the spreads remain wide.

Compare the story in wheat to what’s happening in corn. Corn prices have been rising since July. First it was simply following wheat, but yield concerns and the prospects for a smaller-than-expected crop brought legitimate supply concerns to the corn market.

Dec'10/May'11 corn futures spread

Is the bull market in corn real? Contrast the action in the December/May corn spread to that of wheat. While the wheat spreads widen, the corn spreads continue to narrow, from a low of 23 in early summer to about 16 cents today.

Large carrying charges are the norm in the corn market, but it’s harvest time and the spreads continue to slowly narrow. The inter-delivery spreads in corn are indicating  that the bull move is not over.


Responses

  1. In this case what about the Zwz0-Zcz0 spread, actually at 127,50.. Is there a price were the farmer prefer giving wheat instead corn to their animals.

    I trade this spread when seasonal tendency in on my favor (not actually) but if this spread rich a nice price maybe I will go long.

    Sorry For my English !!!

    Thanks

    Greg


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