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Grains & Beans

  #231 (permalink)
 myrrdin 
Linz Austria
 
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Hiraphor View Post
Just a note to add: the disjoint between the July wheat contracts for 22 and 23, ie trading old crop vs new crop is priced at those levels because of the tight supply in grains at the moment. It's pretty low across the board. It's more of a directional trade betting wheat supply will increase and prices will fall, so I don't think comparing it to the last however many years is too useful, imo would have to analyse wheat supply to make that trade. Just my two cents.

I understand that the WN21-WN22 spread is high because of the current tight supply. And I do not hold any position in the WN21 contract.

In my opinion, it is interesting to note that the WN22-WN23 trades significantly higher than the WN21-WN22. This implies that - if pricing is correct - wheat would be even much tighter next year. But the WN22 crop will not be planted before fall of 2021 in the Northern Hemisphere, and there is a lot of time left to adjust planting area according to the high price. Planting wheat should be very profitable
in 2021/2022 at current prices for the 2022 crop. High prices cure high prices ...

Since 1983, the spread has only traded twice in the range between 30 and 50 c early in the year (January), when the new corp has been planted, never higher. This occurred in 1995/1996 and 2007/2008. Usually the spread trades around 0 or lower at this time of the year.

Best regards, Myrrdin

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  #232 (permalink)
Hiraphor
London, UK
 
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myrrdin View Post
I understand that the WN21-WN22 spread is high because of the current tight supply. And I do not hold any position in the WN21 contract.

In my opinion, it is interesting to note that the WN22-WN23 trades significantly higher than the WN21-WN22. This implies that - if pricing is correct - wheat would be even much tighter next year. But the WN22 crop will not be planted before fall of 2021 in the Northern Hemisphere, and there is a lot of time left to adjust planting area according to the high price. Planting wheat should be very profitable
in 2021/2022 at current prices for the 2022 crop. High prices cure high prices ...

Since 1983, the spread has only traded twice in the range between 30 and 50 c early in the year (January), when the new corp has been planted, never higher. This occurred in 1995/1996 and 2007/2008. Usually the spread trades around 0 or lower at this time of the year.

Best regards, Myrrdin

I did take a look at the graph you're referencing, and fair enough if you think supply of wheat will increase but isn't that a more contrarian view? The May WASDE projects that supplies of wheat through this marketing year are going to get even tighter for the US, so the harvest this July isn't going to significantly increase carryover in the US, so July21 and July22 should be fairly similar. I guess it does look a little extreme that July22-July23 is so low, with world wheat supplies projected to increase as a whole, but right now I feel like if there's bad weather in the coming months for soybeans/corn then the knock on effect to wheat will make that Jul22-Jul23 spread get blown out in the short term. I suppose I'm a little wary of trading mean reversion right now - commodity markets are mostly trending and supply is really tight, we've seen so many "first time ever" events happen in lots of markets this year.

Not that I'm saying it's a bad trade, just maybe adding another viewpoint in case you missed anything :P I quite like the trade in the medium/long term, just be careful with the short term, especially with the lack of liquidity making it hard to stop out..

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  #233 (permalink)
 myrrdin 
Linz Austria
 
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Hiraphor View Post
I did take a look at the graph you're referencing, and fair enough if you think supply of wheat will increase but isn't that a more contrarian view? The May WASDE projects that supplies of wheat through this marketing year are going to get even tighter for the US, so the harvest this July isn't going to significantly increase carryover in the US, so July21 and July22 should be fairly similar. I guess it does look a little extreme that July22-July23 is so low, with world wheat supplies projected to increase as a whole, but right now I feel like if there's bad weather in the coming months for soybeans/corn then the knock on effect to wheat will make that Jul22-Jul23 spread get blown out in the short term. I suppose I'm a little wary of trading mean reversion right now - commodity markets are mostly trending and supply is really tight, we've seen so many "first time ever" events happen in lots of markets this year.

Not that I'm saying it's a bad trade, just maybe adding another viewpoint in case you missed anything :P I quite like the trade in the medium/long term, just be careful with the short term, especially with the lack of liquidity making it hard to stop out..

Thanks a lot for your contributions - it is good to see that there are others interested in the grain markets.

I fully agree that this trade is only interesting long term. It is my intention to hold it at least until the end of the year when the crop is in the ground.

And I agree that it is not certain that the spread will go down from now on. This is why I entered a moderate position, and will add at higher prices in case I will be given the chance.

Low liquidity definitely is a problem. Fills are bad, and, thus, entering and exiting the trade again and again does not make sense.

Best regards, Myrrdin

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  #234 (permalink)
 myrrdin 
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myrrdin View Post
Thanks a lot for your contributions - it is good to see that there are others interested in the grain markets.

I fully agree that this trade is only interesting long term. It is my intention to hold it at least until the end of the year when the crop is in the ground.

And I agree that it is not certain that the spread will go down from now on. This is why I entered a moderate position, and will add at higher prices in case I will be given the chance.

Low liquidity definitely is a problem. Fills are bad, and, thus, entering and exiting the trade again and again does not make sense.

Best regards, Myrrdin

Whereas the WN23-WN22 might be under pressure short-time because of the worse than expected crop ratings, the following message might help in the long run: "Australia looks set for a second consecutive bumper wheat harvest, ..." (David Hightower).

Best regards, Myrrdin

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  #235 (permalink)
Hiraphor
London, UK
 
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myrrdin View Post
Whereas the WN23-WN22 might be under pressure short-time because of the worse than expected crop ratings, the following message might help in the long run: "Australia looks set for a second consecutive bumper wheat harvest, ..." (David Hightower).

Best regards, Myrrdin

Perhaps, but we're still too early to tell! There have been good rains in Australia's wheat production belt, but we're only in the planting stage. Critical crop development will come through the winter for Australia :P and weather can turn in the blink of an eye. Not sure how they've come to the conclusion that there could be a second bumper harvest given that we're in the seeding stage for australia..

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  #236 (permalink)
 myrrdin 
Linz Austria
 
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myrrdin View Post
I understand that the WN21-WN22 spread is high because of the current tight supply. And I do not hold any position in the WN21 contract.

In my opinion, it is interesting to note that the WN22-WN23 trades significantly higher than the WN21-WN22. This implies that - if pricing is correct - wheat would be even much tighter next year. But the WN22 crop will not be planted before fall of 2021 in the Northern Hemisphere, and there is a lot of time left to adjust planting area according to the high price. Planting wheat should be very profitable
in 2021/2022 at current prices for the 2022 crop. High prices cure high prices ...

Since 1983, the spread has only traded twice in the range between 30 and 50 c early in the year (January), when the new corp has been planted, never higher. This occurred in 1995/1996 and 2007/2008. Usually the spread trades around 0 or lower at this time of the year.

Best regards, Myrrdin

It is interesting to note that the WN21-WN22 now trades at -18 c. This suggests that wheat is not considered to be extremely tight in 21/22.

Whereas the WN22-WN23 still trades between 40 and 50 c, suggesting that the trade considers wheat extremely tight in 22/23. But how can anybody know ? The seed will not be in the ground for some more months. And there are no reliable weather reports for this period of time.

I am still convinced that the WN22-WN23 is significantly overpriced. A reason could be the extremely low volume in the WN23. The volume of this contract should rise when the WN21 expires, and the WN22-WN23 becomes the most actual spread.

Best regards, Myrrdin

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  #237 (permalink)
Hiraphor
London, UK
 
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myrrdin View Post
It is interesting to note that the WN21-WN22 now trades at -18 c. This suggests that wheat is not considered to be extremely tight in 21/22.

Whereas the WN22-WN23 still trades between 40 and 50 c, suggesting that the trade considers wheat extremely tight in 22/23. But how can anybody know ? The seed will not be in the ground for some more months. And there are no reliable weather reports for this period of time.

I am still convinced that the WN22-WN23 is significantly overpriced. A reason could be the extremely low volume in the WN23. The volume of this contract should rise when the WN21 expires, and the WN22-WN23 becomes the most actual spread.

Best regards, Myrrdin

Agreed - I'm trading this through the March-July '23 spread rather than July-July, but same trade idea, that July 23 is mispriced.

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  #238 (permalink)
 myrrdin 
Linz Austria
 
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myrrdin View Post
It is interesting to note that the WN21-WN22 now trades at -18 c. This suggests that wheat is not considered to be extremely tight in 21/22.

Whereas the WN22-WN23 still trades between 40 and 50 c, suggesting that the trade considers wheat extremely tight in 22/23. But how can anybody know ? The seed will not be in the ground for some more months. And there are no reliable weather reports for this period of time.

I am still convinced that the WN22-WN23 is significantly overpriced. A reason could be the extremely low volume in the WN23. The volume of this contract should rise when the WN21 expires, and the WN22-WN23 becomes the most actual spread.

Best regards, Myrrdin

Today is the first day when the bid/ask spread for the WN23 is permanently acceptable, approx. 1 c. In recent months this spread was 8 - 10 c. Looks like a market maker is taking care of the future for the first time.

Best regards, Myrrdin

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  #239 (permalink)
 
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 SMCJB 
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@Hiraphor why did you delete your message. I thought you made an interesting point.

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  #240 (permalink)
Hiraphor
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SMCJB View Post
@Hiraphor why did you delete your message. I thought you made an interesting point.

Hahaha was just thinking if it's true I might build a systematic strategy out of it, so probably posting on a public forum isn't a good idea.. however my other point is fair game - fundamentally soybean crush is very high and in contango which is weird

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