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wheat spreads
- Thread starter local
- Start date
Local,
I was long a KW/W for most of the second half of last year (one of my best wins for the year) but closed out my March spread around the first of the year thinking that the March spread 30+ year high is @ 90. The Dec spread also is close to the 30 yr high. May, July are not nearly as close. Three questions:
1) How much do you think these 30 yr high affect these spreads generally?
2) Do you think the funds piling in these days renders the highs as resistance irrelevant ?
3) What do you think causes the various spreads to behave differently in terms of the 30 yr highs? In other words, will May be more likely to approach its highs when it is the front month?
Thanks,
GiantHogweed
I was long a KW/W for most of the second half of last year (one of my best wins for the year) but closed out my March spread around the first of the year thinking that the March spread 30+ year high is @ 90. The Dec spread also is close to the 30 yr high. May, July are not nearly as close. Three questions:
1) How much do you think these 30 yr high affect these spreads generally?
2) Do you think the funds piling in these days renders the highs as resistance irrelevant ?
3) What do you think causes the various spreads to behave differently in terms of the 30 yr highs? In other words, will May be more likely to approach its highs when it is the front month?
Thanks,
GiantHogweed
Quote from local:
George,
The good thing about trading is that there is always another trade. Saw that 600,000 tonnes of wheat sold to Egypt still on books. This and fund roll pushing wheat spreads this week. Sell k/n wheat around 20 cents, very low risk trade.
Regards, local
Local,
I assume you mean to buy k and sell n as the carry is @ 80%. I am pretty new to the ags and the literature I can find usually says this is major resistance point, but it seems like they are regularly exceed 80% and even 100% in the wheat and beans. For example wK/H is at 117%. Is this just funds poring in and "ignoring" carry?
Thanks,
GiantHogweed
Quote from kanellop:
Good Morning there.
Long KCBT May Wheat Futures Contract,
Long to Put Options KCBT February (then Roll-Over to March and April) Wheat Futures Contract.
what do you mean with this:
"Sell k/n wheat around 20 cents, very low risk trade." ?
.
Hello George,
Re wheat spread, I was referring to the chi spread . sell may(K) and buy july (N). I still quote spreads same way it was quoted on the floor buy/sell refers to the nearby side of the spread, implied that the opposite action taken on second side of leg. (Off the topic for a minute, who coined the term "backwardation", never heard it til off the floor, sounds like a word Sarah Palin made up. What would Sarah do I Egypt ? )
Back to the spread. Short the spread because
a)index funds continue to carry large long positions, they are not going to stand for delivery and are unlikely to liquidate so you can anticiapate them rolling in the future which will push the spread wider e.g. H/K out to 30 cents. This is where the COT report comes into play. Trade monitors volume that mus be rolled by using this report. This report was not always made public, gives the short a huge advantage, can't really figure why funds allow their positions to be made public.
Here is a grain story. In 2006 the wheat market turns upside down very quickly, old crop/new crop goes from a significant carry to an inversion over the period of maybe a week. Just watching the trade you sense that it is a "get me out" trade. A short time later I'm talking to a friend and ask him what happened in the wheat. He tells me it was XXXXX, amutual friend of ours. He along with some other locals were short the spread for basically the reason outlined above. However index funds were not long like they are now and when push came to shove, it cost XXXXX 5 million, in about a week. Later I was talking to another mutual freind who confirmed the above, but aslo went on to add that he was up 8 mil on the year prior to that. Go figure.
Regards, local
Hello Again, local.
Thank you for your definitions.
This hour i have an Issue for you,
were want to listen your opinion.
In the past i had a Discussion with Mr Donald Keeney,
Senior Agricultural Meteorologist of MDA Federal.
That Discussion was relative to Winterkill in Wheat.
Here was the Comments from Mr Donald Keeney to me:
-------------------------------------------------------------------------------
George,
Winterkill thresholds are a bit dependent on crop health during germination and establishment the previous fall. A well established crop can withstand temperatures slightly lower than poorly established crop. The general rule is that a well established wheat crop can withstand temperatures as low as -20 C for up to 4 hours. A poorly established crop can withstand temperatures to -17 C for up to 4 hours. Anything more than 4 hours will begin to cause damage. I just used the -17 C as a minimum threshold for any possibility of winterkill. Snow cover more than 4" (10 cm) will protect wheat no matter how cold it gets, while snow cover less than that will do little to protect wheat.
Don
-------------------------------------------------------------------------------
Now, if you go here:
http://www.weather.gov/forecasts/graphical/sectors/ ,
to the: Graphical Forecasts,
you will see the Minimum Temperature.
If you go a little down in the Middle of that Internet Page,
you will see the: Temperature.
If you make Mouse Click there,
you will go here:
http://www.weather.gov/forecasts/graphical/sectors/conus.php?element=T .
There you can see some Forecasts in the Left and in the Field: Temperature.
After all these,
which is your opinion for the Hard Red Winter Wheat Areas of Nebraska, Kansas, Oklahoma and Texas ?
Affect/ed by Winterkill ?
Kind Regards,
George Kanellopoulos.
Thank you for your definitions.
This hour i have an Issue for you,
were want to listen your opinion.
In the past i had a Discussion with Mr Donald Keeney,
Senior Agricultural Meteorologist of MDA Federal.
That Discussion was relative to Winterkill in Wheat.
Here was the Comments from Mr Donald Keeney to me:
-------------------------------------------------------------------------------
George,
Winterkill thresholds are a bit dependent on crop health during germination and establishment the previous fall. A well established crop can withstand temperatures slightly lower than poorly established crop. The general rule is that a well established wheat crop can withstand temperatures as low as -20 C for up to 4 hours. A poorly established crop can withstand temperatures to -17 C for up to 4 hours. Anything more than 4 hours will begin to cause damage. I just used the -17 C as a minimum threshold for any possibility of winterkill. Snow cover more than 4" (10 cm) will protect wheat no matter how cold it gets, while snow cover less than that will do little to protect wheat.
Don
-------------------------------------------------------------------------------
Now, if you go here:
http://www.weather.gov/forecasts/graphical/sectors/ ,
to the: Graphical Forecasts,
you will see the Minimum Temperature.
If you go a little down in the Middle of that Internet Page,
you will see the: Temperature.
If you make Mouse Click there,
you will go here:
http://www.weather.gov/forecasts/graphical/sectors/conus.php?element=T .
There you can see some Forecasts in the Left and in the Field: Temperature.
After all these,
which is your opinion for the Hard Red Winter Wheat Areas of Nebraska, Kansas, Oklahoma and Texas ?
Affect/ed by Winterkill ?
Kind Regards,
George Kanellopoulos.
Hello Again.
I have detect now and that for the Winterkill in Wheat:
http://www.hpj.com/archives/2008/dec08/dec22/Wheatspecialistgivestipsone.cfm .
Wheat specialist gives tips on evaluating potential for winterkill
Kansas
Frigid temperatures arrived with a vengeance in Kansas in mid-December which may have prompted wheat growers to wonder if that is causing any winterkill of wheat?
There are three main questions to consider when evaluating the potential for winterkill, said Jim Shroyer, K-State Extension agronomy state leader and crop production specialist.
--How well has the wheat hardened off? When temperatures through fall and early winter gradually get colder, that helps wheat plants develop good winterhardiness, Shroyer said.
"When temperatures remain unusually warm late into the fall then suddenly drop into the low teens, plants are less likely to have had time to harden properly and will be more susceptible to winterkill," he said. "This fall, temperatures have fallen off gradually and the wheat crop should be adequately hardened in most cases."
--How well developed is the root system? Where wheat plants have a good crown root system and two or more tillers, they will have better winterhardiness, Shroyer said. If plants are poorly developed going into winter, with few secondary roots and no tillers, they will be more susceptible to winterkill or desiccation.
"Poor development of secondary roots may not be readily apparent unless the plants are pulled up and examined. If plants are poorly developed, it may be due to poor seed-to-soil contact, dry soils, very low pH, insect damage, or other causes," he said.
--How cold did the soil get at the crown level? This depends on snow cover and moisture levels in the soil. Winterkill is possible if soil temperatures at the crown level (about one inch deep) get down to 10 to 12 degrees or less, Shroyer said. If there is at least an inch of snow on the ground, the wheat will be protected and soil temperatures will usually remain above the critical level. Also, if the soil has good moisture, it's possible that soil temperatures at the crown level may not reach the critical level even in the absence of snow cover.
"But if the soil is dry and there is no snow cover, there may be the potential for winterkill, especially on exposed slopes or in low-lying areas, depending on the condition of the plants. Air temperatures below -10 degrees can certainly reduce soil temperatures below critical levels when the soil is dry and there is no snow cover," he said.
To test for winterkill damage, producers can dig up a few plants, put them in pots, and bring them inside to warm up, the K-State agronomist said. If the plants do not respond to the warmer conditions, they may have suffered winterkill injury.
"If plants are killed outright, they won't green up," Shroyer added. "But if they are only damaged, it might take them awhile to die. They will green up and then slowly go "backwards" and eventually die. There are enough nutrients in the crown to allow the plants to green up, but the winter injury causes vascular damage so that the nutrients that are left cannot move, or root rot diseases move in and kill the plants. This slow death is probably the most common result of winter injury on wheat."
Direct cold injury is not the only source of winter injury, he added.
"Under dry conditions, wheat plants may suffer from desiccation," he said. This can kill or weaken plants, and is actually a more common problem than direct cold injury."
12/22/08
1 Star WK\9-B
Date: 12/18/08
Kind Regards,
George Kanellopoulos.
I have detect now and that for the Winterkill in Wheat:
http://www.hpj.com/archives/2008/dec08/dec22/Wheatspecialistgivestipsone.cfm .
Wheat specialist gives tips on evaluating potential for winterkill
Kansas
Frigid temperatures arrived with a vengeance in Kansas in mid-December which may have prompted wheat growers to wonder if that is causing any winterkill of wheat?
There are three main questions to consider when evaluating the potential for winterkill, said Jim Shroyer, K-State Extension agronomy state leader and crop production specialist.
--How well has the wheat hardened off? When temperatures through fall and early winter gradually get colder, that helps wheat plants develop good winterhardiness, Shroyer said.
"When temperatures remain unusually warm late into the fall then suddenly drop into the low teens, plants are less likely to have had time to harden properly and will be more susceptible to winterkill," he said. "This fall, temperatures have fallen off gradually and the wheat crop should be adequately hardened in most cases."
--How well developed is the root system? Where wheat plants have a good crown root system and two or more tillers, they will have better winterhardiness, Shroyer said. If plants are poorly developed going into winter, with few secondary roots and no tillers, they will be more susceptible to winterkill or desiccation.
"Poor development of secondary roots may not be readily apparent unless the plants are pulled up and examined. If plants are poorly developed, it may be due to poor seed-to-soil contact, dry soils, very low pH, insect damage, or other causes," he said.
--How cold did the soil get at the crown level? This depends on snow cover and moisture levels in the soil. Winterkill is possible if soil temperatures at the crown level (about one inch deep) get down to 10 to 12 degrees or less, Shroyer said. If there is at least an inch of snow on the ground, the wheat will be protected and soil temperatures will usually remain above the critical level. Also, if the soil has good moisture, it's possible that soil temperatures at the crown level may not reach the critical level even in the absence of snow cover.
"But if the soil is dry and there is no snow cover, there may be the potential for winterkill, especially on exposed slopes or in low-lying areas, depending on the condition of the plants. Air temperatures below -10 degrees can certainly reduce soil temperatures below critical levels when the soil is dry and there is no snow cover," he said.
To test for winterkill damage, producers can dig up a few plants, put them in pots, and bring them inside to warm up, the K-State agronomist said. If the plants do not respond to the warmer conditions, they may have suffered winterkill injury.
"If plants are killed outright, they won't green up," Shroyer added. "But if they are only damaged, it might take them awhile to die. They will green up and then slowly go "backwards" and eventually die. There are enough nutrients in the crown to allow the plants to green up, but the winter injury causes vascular damage so that the nutrients that are left cannot move, or root rot diseases move in and kill the plants. This slow death is probably the most common result of winter injury on wheat."
Direct cold injury is not the only source of winter injury, he added.
"Under dry conditions, wheat plants may suffer from desiccation," he said. This can kill or weaken plants, and is actually a more common problem than direct cold injury."
12/22/08
1 Star WK\9-B
Date: 12/18/08
Kind Regards,
George Kanellopoulos.
George,
I can't say with any conviction exactly what, if any, effect the weather is going to have on wheat, nobody can. Often, even when there is damage to wheat it is difficult to quantify for some time. Wheat is trading very sporadically, obviously, even tonite a 13 cent range, on what ? Look at the julys, chi vs kc about 56 cents, not bad. Over the longer term, flooding in norhtern states and into Canada. Quality could be an issue into next year.
Regards, local
I can't say with any conviction exactly what, if any, effect the weather is going to have on wheat, nobody can. Often, even when there is damage to wheat it is difficult to quantify for some time. Wheat is trading very sporadically, obviously, even tonite a 13 cent range, on what ? Look at the julys, chi vs kc about 56 cents, not bad. Over the longer term, flooding in norhtern states and into Canada. Quality could be an issue into next year.
Regards, local
Hello Again.
I have find and the following:
http://www.agra-net.com/portal2/home.jsp?template=newsarticle&artid=20017845894&pubid=ag047 ,
Winterkill claims some US wheat, more damage to come
Wednesday February 02 2011
A SNOW storm that has caused disruption to grain trade and other movement in the US has missed some key wheat growing areas, exposing seedlings to frost.
"Snow is covering about a third of the Plains wheat belt, which of course leaves the western two thirds of the belt exposed," said Donald Keeney of US meteorologist MDA Federal. "Temperatures are well below 0 degrees Fahrenheit this morning, ranging from -3 in Amarillo, Texas, to -15 in Sydney, Nebraska. I'm estimating about two thirds of the Plains wheat belt is seeing significant winterkill from this event."
Kind Regards,
George Kanellopoulos.
I have find and the following:
http://www.agra-net.com/portal2/home.jsp?template=newsarticle&artid=20017845894&pubid=ag047 ,
Winterkill claims some US wheat, more damage to come
Wednesday February 02 2011
A SNOW storm that has caused disruption to grain trade and other movement in the US has missed some key wheat growing areas, exposing seedlings to frost.
"Snow is covering about a third of the Plains wheat belt, which of course leaves the western two thirds of the belt exposed," said Donald Keeney of US meteorologist MDA Federal. "Temperatures are well below 0 degrees Fahrenheit this morning, ranging from -3 in Amarillo, Texas, to -15 in Sydney, Nebraska. I'm estimating about two thirds of the Plains wheat belt is seeing significant winterkill from this event."
Kind Regards,
George Kanellopoulos.
Quote from GiantHogweed:
Local,
I assume you mean to buy k and sell n as the carry is @ 80%. I am pretty new to the ags and the literature I can find usually says this is major resistance point, but it seems like they are regularly exceed 80% and even 100% in the wheat and beans. For example wK/H is at 117%. Is this just funds poring in and "ignoring" carry?
Thanks,
GiantHogweed
I believe that the wheat spreads are as wide as they are because there is a problem with taking delivery. Someone with more insight in the cash may be able to elaborate. Normally with a contract that is functioning prpoerly buying the spread beyond full carry locks in a profit. This is the only futures trade that essentially guarantees a profit. This is why you typically don't see the spreads breach full carry, except in the case where there is a problem with delivery. Point in case, when I was on the floor I did some brokerage and the only unlimited orders I ever got were to buy spreads at full carry. So, although the K/N is approaching 80% of full carry, the short stands aside until the long is forced to roll (see COT report).
One thing that should be realized is that the facilities that are designated as delivery points don't really want to be used as storage, the real money for them is in turnover. Thus a reluctance on the part of the storage facilities to isuue delivery certs.
The implications are significant for the long. For wheat right now the H/K is trading at 31 cents, say 15 cents/ month. Extrapolate that over 12 months, $1.80. Therefore, even with the rally in the wheat over the past 8 months, much of that is eaten up by the cost of rolling. The incentive to carry large long positions over a long period ( fund or commercial) is diminished.
Jim Rogers is an advocate for owning commodities. His arguement is compelling but he doesn't tell you how to do it. If you chose the wrong contract your cost to rollover the contracts may exceed the flat price increase. This is what happened to him when I took the opposite side of a particular contract he was trading. He stayed in for about 5 years and lost money because of the high cost of rolling over and the flat price going nowhere. If I were a fund manager, the specifications of the contract are one of the first things I would l consider. Th index funds in certain contracts are learnig that now. e.g. crude.
The above challenges the contract, exchange officials have attempted to address the problem for wheat, but has been met with little success. My guess is that as more money pours into commodities (record levels of open interest held by funds in corn and beans and sure other contracts) other contracts will be challenged. Sorry for the length.
Regards, local
Further to the wheat spreads. An friend of mine once described a spread as a "stick with dog sh-t on both ends". I think this is an accurate description of the wheat spreads and crude spreads. Longs know that rolling over from the nearby to the following month is just creating the same scenario when they roll out of the subsequent months. K/N widened out today to about 24 cents, not much left in it. Now, the corn funds, these guys know what they are doing.
Regards, local
Regards, local