After falling about 45 cents from the beginning of the week, wheat recovers almost to where it started the week. I know that wheat recovered at least in part due to the broad support of all commodities but I think at least part of the aggressive selling was due to a renewed interest from the CME to do something to the contract to get convergence. I have traded futures contracts that don't converge and I have found that it is extremely difficult to trade it from the short side. Unfortunately there is almost nothing the cme can do to force convergence. They have been trying for the past year and have only come up with the VSR which appears to be doing nothing.
This brings up another point. The reason for the lack of convergence, in part, is due to the large speculative positions of the index funds. Guess what, other commodity futures contracts are starting to experience the same problems and are characterized by large (record) open interests. My concern is that these contracts are going to go the way of the wheat contract as the specifications of the contracts and the limited underlying physical do not allow for the such large open interests. Trade these contracts from the long side, I think.
Regards,local
This brings up another point. The reason for the lack of convergence, in part, is due to the large speculative positions of the index funds. Guess what, other commodity futures contracts are starting to experience the same problems and are characterized by large (record) open interests. My concern is that these contracts are going to go the way of the wheat contract as the specifications of the contracts and the limited underlying physical do not allow for the such large open interests. Trade these contracts from the long side, I think.
Regards,local