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Red River Valley | One must understand that the spread traders on the floor are the smartest people in the room bar none those that trade or have traded spreads see differant things than others see so to try and trade spreads from a far is very tuff.
Having said that there is room to market spreads first and formost I would spread the Hard wheats against Chicago in the July or maybe May CBOT is about flat or maybe slight pre. to both KC and MINNY my view is that Minny will carry a .20 prem to cbot as we move to those months. also its a little late know but if one had moved their HTA's to July or May back a couple months ago ( when I talked about it ) I would look to roll them back atleast to March sometime this week and if the Dec. march also inverts roll all the way back to dec then look to walk them out to new crop a month at a time as the market builds carry back into the wheat someone will need to hold the 800 mb that I belive will be ending stocks in the US.
For corn and beans it is a little differant story because what I would recomend is based on an opinion that is a very lone Eagle view. but I will lay out a couple of views on corn.
View One the ( popular view ) Crop is much shorter than USDA's currant outlook and we will run out of corn and need to take prices to levels that break one of our endusers. if that is the case then I would market every thing that I sell as an HTA into the July time frame there is carry to July not as good as there was a month ago but some carry
then wait because if they are going to need to break the end user they will do it early probably right after the Jan. report., which should Invert the market and allow you to Roll back. This would allow you to catch the carry out and the Inversion back as of today that would get you .22 carry and I would guess if this crop is as bad as most think now sub 159 they would invert it to the tune of .15-.18 neting you .40 for making a couple of phone calls. The problem with this formula is that the Farmers that hold this view are going to just hold on to their crop and gain the $1.00 a bushel of up in this market that they know is coming, by the time they get that dollar up the market will already be inverted so no need to do anything but wait.
View 2 is the lone wolf view that is that this crop is as big as USDA is talking now not only that but you have to add back in the Million acres that Informa and the farmers favorite company Lanworth both think will be found shortly along with the extra bushels that the farmer had in his bins that USDA did not find in the June report. ( this issue is being talked about in the commercial trade much more so than in the futures trade). If one is to buy into this plan ( and Nobody will ) than I would start some kind of selling one sunday night and I would sell 2010 crop into the March with HTA's and look to roll out to the late summer to deliver then I would hedge on the board of trade the July 11 crop and roll these hedges to Dec. 11 as carry develops in most probable Jan. - March time frame before the big wheat scare and planting scare hits the US in the spring.
As for Beans the best I can do is to tell you to sell the Nov. and hope that a some carry develops with the harvest into the Jan and that basis comes togather after harvest if you have limited bin storage store corn and cash beans.
as far as Inter market spreads go I would be real careful there for all of the reasons stated above but if told me to pick one it would be long meal short bean oil. Maybe long high quality (think hard wheats) short corn but then again that would be for the lone wolf view. If this corn crop is as small as most everyone thinks it is then at some point the short July 11 long Dec 11 will work for a very nice profit I think it will work vs todays level but you may need to be able to afford an large drawdown in your margin account but in the end it would make you around .40 I think the trade will give me a chance to maybe double that amount lastly I will also at some point spread July 11 beans against Nov. 11 beans this trade is not for the faint of heart ( there is a reason they call it the widow makers trade) but I think it will allow for a .50 gain at some point but you need to be very careful with it when you know it is going to work wait one week and if the trade went against you for that week start trending into it lightly and build your positon for a week .
So there you have it a very long and painful post ot read but that is what it is like to trade spreads or market spreads it's just a lot easier to now that the market has to go higher and wait or scale up sell and go to the bank.
If I had to rank my spread trade plays in order it would be
1) Intermarket wheat spread this is farm and away the number one choice
2) sell the July in corn and roll it to Dec 11
3) sell the July in corn and Roll back when it Inverts
2 and 3 are and either or trade and only one will work
then spread the Meal/ oil but for almost every farmer that is a straight spec trade and one needs to stay on top of it if you rolled your wheat HTA's out a couple of months ago when I talked of it it's getting close to time to start walking them back in. I have moved some back from July to March for .20 will take them all back in at .28 and will move them all back to dec if I can get even a nickel then as corn harvest gets into full gear and Aus. wheat harvest picks up will look to walk them back out a carry I think I will be delivering them in July for a full carry of about .25 more.
One small note Progressive Ag has with their yield modeling and field sampling come out with a 168.5 corn yield sighting great crops in the north off setting poor crops in the south. So I guess I'm not all alone but let's face it there is enough room to run a nascar race on this side of the boat.
Of course I'm considered crazy by most on this board but for now I'm ok with that.
again sorry this got so long
Edited by Tara Farms 9/5/2010 14:44
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DEC 10 to DEC 11
