Posted by: usset001 | April 27, 2011

Interdelivery wheat spreads in Chicago

Chicago Jul’11 wheat futures

As I continue to exanmine interdelivery spreads in the grain futures markets, I think I should point out that I consider the trends in these spreads to be an important leading indicator of market direction. I must emphasize that spreads are not the only leading indicator – basis levels and what they say about the strength of the underlying cash market are just as important. I simply see red flags when prices are moving in one direction, but the spreads are indicating a different direction.

Let’s take a peek at Chicago wheat. As you might expect, all of the wheat markets have told a similar story in recent months. After a substantial market correction in February and March, prices rebounded nicely over the past 6 weeks. New crop Chicago July futures are up $1.50/bu. since mid-March.

 

The spreads tell a different story. Even as prices recovered, the Jul/Dec spread continued to widen, from a 45 cent carry in early March to a whopping 80 cent carry as of yesterdays market close. That makes for a funny looking bull market.


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