Last year this spread traded to a six cent carry to a 90 cent inversion. That’s a $4800 move with one spread. I suggest buying this spread on two fronts.
1. Technically we filled a gap this week from the breakout that began last spring. The spread ran out of sellers at a 6 cent carry and we have seen a very light bounce of three cents. Looking at some steep downward trend lines on the charts, I suggest buying at or near 5 to 3 cents July under with a stop at 10.6 cents, a light risk in my view.
2. If we have any combination of weather issues related to spring planting or persistent dryness occurs in the spring wheat growing areas, it is our assessment that we could see a rally where the front month contracts either May or July Minneapolis futures will gain on deferred back month contracts September and December. If this level is a bottom, look to buy at a carry from the aforementioned levels and look for a rally up to 12 cents then 19 cents July over September.
Sean Lusk
Director Commercial Hedging Division
Walsh Trading
312 957 8103
888 391 7894 toll free
312 256 0109 fax
slusk@walshtrading.com