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
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