Grain Spreads

D

DaleStrawhart

Hi I am following the grain markets - Corn, Soybeans & Wheat.
I would like to know from those of you who will share with me ways of determining which spreads to choose. & any information on spread trading as well.
Thank You have a great day.
Dale
 
First place to look, IMHO, is the Educational Resources section for the grains in the CME website.

Many grain spreaders use fundamentals and basis differentials to determine which spreads to trade. This, of course, would include commercials.

You can also use price-based models and charting to choose which grain spreads to trade as well.

Myself and my clients use the price-based T/A approach. I do have some newer clients who were long time floor traders in the grain pits, so I wouldn't necessarily say that one is superior to the other. Just my 2 cents. The advantage to the price-based T/A approach is that theoretically you should be able to trade more products. The disadvantage to a good price-based system is that you will be giving up some trading range in exchange for good signal confirmation.
 
Bone, when you train the grain spreads do you find more success in keep IMF to the same harvest ie new/new or old/old. Or do you find the new/old provides better opportunities (albeit more volatile) ?
 
Quote from maninjapan:

Bone, when you train the grain spreads do you find more success in keep IMF to the same harvest ie new/new or old/old. Or do you find the new/old provides better opportunities (albeit more volatile) ?
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Combinations of "all of the above". We are looking at all or most possible pair, butterfly, and condor combinations along the entire curve where there is open interest above 3K. This gets tough and can limit our combination potential with some products where there may be only eight or nine month/year contracts with OI > 3K.

As a side note, we really tend to shy away from the first couple months of a product where most of the OI is speculative - and the spreads behave like the flat price futures contract in terms of delta risk exposure.

So, as you can see, we are not "fundamentalists" - and I used to be a commercial energy trader. My feeling these days in these efficient, widely disseminated electronic markets is that everything known about a product by all market participants is distilled into that last price print. From my own personal experience, dominant commercials ( like Cargill or ADM in the case of grains ) do not allow futures contracts to remain under or over-valued relative to the physical basis.

Having said all that - if you are a fundamental trader, and you are consistently profitable, keep on keeping on because the bottom line is in fact the bottom line. I would never argue with that or say that my way is better than your way. I have to design spread trading systems that work for experienced traders with varied backgrounds and that gives them the best shot at consistency trading the broadest swath of different and varied markets - which is why I use price. If I take on an experienced ES or 6E scalper as a client who wants to expand his revenue stream into other products - I need to give him his best shot in energy, the rates, and the softs. And he is not going to be a fundamental expert in any of those. Nor will he be in the future.
 
MRCI provides lots of ideas for trading spreads... note that I say ideas, not trades... not all their trades work, so use common sense... but usually (assuming exchange traded spreads) just search for whatever has the most volume..
 
My impression the past few years is that trading the softs strictly from the aspect of historical "seasonal" biases has been mixed at best.
 
Quote from bone:

My impression the past few years is that trading the softs strictly from the aspect of historical "seasonal" biases has been mixed at best.
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if I am not mistaken, we are talking about grains on this thread, not softs... so not sure what their failure to trade based on seasonality has to do with the thread...
 
Quote from ofthomas:

if I am not mistaken, we are talking about grains on this thread, not softs... so not sure what their failure to trade based on seasonality has to do with the thread...
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OK, for your own edification please add the term "domestic agricultural commodities" to my previous comments for your pleasure. I guess tropical agricultural commodities are "softer" than domestic grains. Although a coffee bean might compare to a corn kernel in terms of hardness.
 
Quote from bone:

OK, for your own edification please add the term "domestic agricultural commodities" to my previous comments for your pleasure. I guess tropical agricultural commodities are "softer" than domestic grains. Although a coffee bean might compare to a corn kernel in terms of hardness.
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hmmmm.... I hear what you are saying, you are using an older term... but when anyone in the present day and age refers to grains or softs they represent the following...

softs = Cotton, Orange Juice, Coffee, Sugar, Cocoa, Lumber
grains = Wheat complex, Corn, Beans Complex, Oats, Rice, Canola
 
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