I hope every one of you and your families has a great Thanksgiving! The general rule for Thanksgiving week is Monday and Tuesday seem like normal trading days but Wednesday and Friday (half day) get really slow. Usually the only time the markets get very active the before and after Thanksgiving Thursday is if something much unexpected happens. The Friday after Thanksgiving in 2009 comes to mind when Dubai defaulted on their debt and sent gold down at least $50. I was in the office that Friday morning with the rest of the skeleton staff…it was a busy half day to say the least.
WEBINAR: I’ll be holding a webinar Wednesday, Dec 2nd (the Wednesday after Thanksgiving), on Moore Research Center, Inc (MRCI) and Seasonal Futures Spread Trading. If you would like to know more about MRCI, why we trade futures spreads, and how we analyze seasonal trading ideas, please sign up here: https://www.danielstrading.com/webinar/mrci-seasonal-futures-spread-trading/
MRCI Monthly Trade Review: This month’s MRCI review for November is the March vs February Natural Gas Bear Spread. I like this bear spread because Natural Gas has been bearish, continue to be in a bearish trend, the weather forecast appears to be seasonable average over the next couple of weeks, and the seasonal window is bearish. Click here to see all the details: https://www.danielstrading.com/featured/2015/11/24/mrci-november-2015-trade-review-march-2016-natural-gas-vs-february-2016-natural-gas/
New PODCAST: John Payne and I recorded a little early this week due to everyone trying to get out of town for Thanksgiving. If you subscribe to Inside Commodity Futures on iTunes or Android your app should pull a new episode automatically. Otherwise you can listen here: https://www.danielstrading.com/featured/2015/11/24/inside-commodity-futures-happy-thanksgiving/
WHEAT: We have been talking about the KC Wheat vs Chicago Wheat spread for a long time now. KC Wheat has been at a discount to Chicago and I think this spread may have bottomed (see chart below). KC Wheat typically trades 30 to 60 cents OVER Chicago yet it is 15 cents UNDER in the MARCH contracts at the close today. One of the reasons Chicago wheat gained on KC was due to poor Soft Red Winter Wheat quality. Chicago is the Soft Red Winter wheat while KC is Hard Red Winter wheat. Hard wheat has better protein content than Soft, and in a normal market with normal supply and demand for both wheat products, KC will trade 30 to 60 cents over.
For much of this past year KC Wheat has been in ample supply. Chicago wheat has been in ample supply with respect to total bushels, but many of those bushels were of poor quality. The poor quality lead to a shortage of “deliverable grade” wheat in the Chicago contract. That lack of deliverable quality wheat is what lead Chicago SRW wheat to trade higher against KC HRW wheat.
I think the market has dealt with this and is now moving on. The SRW wheat cash market (Chicago) is 20 to 30 cents over the futures. I don’t see any kind of cash short squeeze happening at the exchange with First Notice Day coming on Nov 30. If anything we may see the hedgers short the contracts try to deliver on the longs since futures is so much higher over cash. In that case the long contract delivered on would most likely be retendered. This in turn would put pressure on the front month of the Chicago Wheat contract
Why does that matter? That kind of price action would indicate the SRW (Chicago) wheat spreads could be going lower and we could see an increase in the carry. That would also be good for the KC Wheat vs Chicago Wheat spread. KC HRW wheat is trading like a normal supply/demand market so I don’t see the calendar spreads for old crop going much lower. So if the carry is getting greater for the Chicago contracts and staying relatively the same for KC, then the front month contracts (Dec and March) for KC should gain against the Chicago front month contacts (Dec and March) in the short term. In the long term Chicago SRW wheat is able to have enough quality deliverable grade wheat to no longer trade at a premium to Kansas City HRW wheat.
March KC vs Chicago Wheat
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