Grain Spreads

Sean Lusk Grains Leave a Comment

Soy Complex

Outright beans and meal showed some impressive gains in that they bounced from overnight and morning selling to finish the day positive. It looks to me that old crop/new crop bean and meal spreads have found some buying interest in the near term. Part of it stems from the funds holding sizable shorts in outright beans while a weaker dollar is promoting an overall inflationary theme across the commodity board. So far the market has bought any dips across the complex since last Friday’s report and to me this looks like there maybe some value in old crop/new crop bean and meal spreads. The July/Nov 18 soybean spread traded down to a report day low of a 5 cent carry prior to last weeks USDA report. As the report was bullish vs the average trade guess, it has rallied 5 cents to a slight inversion. I would look to be a buyer here at parity or even looking for the spread to rally 10 cents July over November. Same goes for July/Dec 18 Meal . This spread traded down to a small 1.8 carry but has since worked higher to trade a half point inversion. Look to buy Jul/Dec Meal at parity with a potential to rally of 8 ton over.

Wheat vs Corn

Both markets exhibited some short covering today as funds covered some of their massive shorts in each contract. I suggested last Friday that  those long wheat vs corn to exit and wait for a clearer picture. I’m still advising this unless March wheat vs corn trades and closes over 71 over. A close over this level and the trade could have another ten cent rally to 81 cents Chicago wheat over corn. KC wheat over corn got spanked last week as well losing 22 cents from last weeks high to this weeks low. This spread went out today at 75 cents wheat over corn. It needs to hold trend line support at 73 over or will suffer further losses potentially down to 68 and 63 over.

Minneapolis vs Chicago/KC wheat

A few weeks prior we advocated selling Minneapolis wheat while buying Chicago at $1.95-97 Minneapolis over Chicago. This spread has hit our targets and traded through us a few times trading up to 2.01. Appropriate stop losses were put at 2.06 over risking approx. 10 cents from entry. Sell rallies on this spread which settled today at 1.91 over or sell KC vs Minneapolis. KC vs Minn is trading at 1.84 over. Aggressively sell KC vs Minn at 1.90 over with the preferred sell off of 1.95 and 1.96 Minn over KC. (sell a rally) Put a stop at 2.04. I look for this spread to tighten to 1.55, which means this spread can at least tighten 30 to 40 cents quickly. Last year at this time this spread was trading 60 to 70 cents Minneapolis over KC.

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