Friday was first notice day for Chicago Wheat and there were 2343 contract of wheat that was issued delivery notifications on Friday. That is well beyond what the trade was expecting. It looks like the longs in Dec Wheat are caught on the wrong side of the trade and need to retender and sell wheat to get out of their delivery commitments. Not a big deal but it did drive the front month of Chicago Wheat down against the deferred Chicago contracts as well as KC Wheat.
It turns out Dec Wheat was trading 20 to 30 cents higher than the cash market and anyone short wheat as a hedge coming into FND has the write to delivery on the longs. If you have wheat, can get 20 or 30 cents higher in the futures compared to the local cash market, why not deliver?
That is why we are long March KC Wheat and short March Chicago Wheat. As the Chicago wheat contract comes back into a normal market and towards full carry, we expected KC Wheat to trade at a premium to Chicago Wheat. We are long March KC Wheat and short March Chicago Wheat from -15.00 cents (premium to Chicago) and we are up about 12 cents. I think we are going to the +10 to +20 cents range and SRW and HRW come back to a normal supply/demand market.
March 16 KC Vs March16 Chicago
This chart of Dec Wheat (old crop) vs July Wheat (new crop) says it all. This spread had been elevated because of quality concerns for deliverable grade wheat. Apparently there is plenty of wheat available for delivery and now the spread is making a run at full carry. Considering this spread is $300 margin, a 30 cent move in a few trading sessions might be the fastest price move to margin trade in 2015.
John Payne and I talked about this possibility on our last Inside Commodity Futures podcast. To find out more why this move was a possibility please listen to our latest podcast here: https://www.danielstrading.com/featured/2015/11/24/inside-commodity-futures-happy-thanksgiving/
Dec 15 Wheat vs July 16 Wheat
Try Turner’s Take Market Alert – for 30 Days
Turner’s Take Market Alert – Trial - Turner’s Take Market Alert includes Daily Updates and an Intraday Trade Recommendation service for Daniels Trading clients.
Turner’s Take Market Alert – includes an email newsletter subscription.
Turner’s Take Market Alert – trial lasts 30 days.
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.