Wheat at a 57% premium to corn - what does this mean? - Grain - Mecardo
Price relationships between hogs, cattle, broilers, corn, wheat and soybeans are studied Meat prices were found to react slowly to changes grain corn prices. A spot relationship between the prices of corn and wheat that has only happened twice in almost three decades may provide speculators with a. Next, look at the difference between corn and wheat prices on the Besides historical price relationships, the truth is the current corn crop is.
Conversely, an increase in th e supply of wheat coming to world markets has caused short-term weakness in prices.
Historical Wheat vs Corn Spread Prices
The Senate, last week, approved a bill to abolish the subsidy to ethanol producers. Though the bill is almost entirely symbolic because tax bills must originate in the House, even supporters of the subsidy have conceded to some changes.
Additionally, the premium on corn has increased speculation of a shift to wheat as feedstock. Department of Agriculture reported last week in its year projection of supply and utilization that the use of corn for livestock feed will decrease 2.
- Price Spread Between Corn and Wheat Presents Opportunity
- Is wheat undervalued on the futures market?: Braun
- Wheat at a 57% premium to corn - what does this mean?
Drought in Kansas and colder-than-normal conditions in Canada may decrease the supply of wheat even as other parts of the U.
Among the options available to traders is a short position in corn futures and an offsetting position in wheat futures.
The unusual price behavior, combined with the effects of seasonality in the grains, may also create a situation for options traders. Put options in corn and call options in wheat will help to limit the risk that the pricing relationship does not quickly reverse and the trader will not be exposed to margin risk. The CME Group offers a wheat-corn intercommodity spread option that will follow the spread relationship as well. Since Friday, the spot price relationship for corn and wheat has reversed.
Looking at recent price charts for wheat and corn, one can see that the value of both has tumbled since July. Corn prices have also dropped, but not to the same degree. When trading wheat, corn, or any other agricultural commodity, it's important to understand the factors that can affect price movement and trends.
At a high level, weather is a big factor in agricultural commodities due to its effect on any given harvest. For example, extremely hot weather, or drought-like conditions can lower the yield of a particular crop, which in turn impacts supply.
Fluctuations in demand can also obviously affect price. Wheat is primarily used as food, so economic conditions around the world contribute to the demand for wheat.
Corn, on the other hand, is primarily used to feed animals, and as a component of ethanol. The varying demand for ethanol, which is often mixed with gasoline, can, therefore, impact the price of corn. Another key aspect of trading agricultural futures is an understanding of the crop marketing year - a topic that is covered in the aforementioned episode of Closing the Gap.
At a high level, this involves tracking when a crop is planted and when it is expected to be harvested. Because this often occurs across two different calendar years, the crop marketing year can help track actual planting and harvesting.
Iconic Futures Spread: Wheat vs. Corn — tastytrade blog
For example, the wheat marketing year runs from June 1st of a given year through the end of May in the next year. Wheat also has two planting seasons, spring and winter.
Corn, on the other hand, has one primary growing season the same calendar yearAs you may already know, corn is typically planted in spring and harvested in late summer - much like spring wheat.
Corn Spread While many factors are often considered when speculating in agricultural futures weather, demand, crop marketing year, etc On this episode of Closing the Gap: Futures Edition, the hypothetical process of identifying and executing a spread trade using wheat and corn futures is presented.
In this case, the Closing the Gap team uses the historical price relationship between wheat and corn to identify a possible opportunity. As detailed above, the price of wheat has dropped to a greater degree than the price of corn since the height of summer.
The chart below illustrates the spread between wheat and corn prices over the last couple of years. Using this information, we can observe the range of the relationship between the prices of the two commodities: Theoretically, a spread between the two futures might look attractive to traders at either extreme in the range.