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With planting season right around for many grain markets, the seasonal grain traders and funds have already began to shift focus and funds from other sectors into what will certainly be an interesting year in grains. The line between energies and grains gets more blurry by the day, volatility is at record highs and world politics continues to complicate matters.

But as traders await planting intentions and early soil condition results the world wheat market has put stock indices to shame with their unprecedented moves, prices and now -- margin requirements.

Funds have been adding to their net long positions for weeks but many traders are looking for an alternative to simply jumping on the bandwagon. In the next week we expect substantial activity in the wheat spreads. But not necessarily month to month, more so we expect heavy volume to look for opportunities in the Minneapolis vs Chicago spreads. First, make sure you understand that there is a definite difference between the two. Minneapolis wheat has a much higher protein level than Chicago wheat and is used for different products, one being a hard wheat and the other soft.

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Normally we look for a comfortable spread of about 25c or so between the two. Of course, depending on the season and demand this fluctuates but current spreads, although not unheard of, are very unusual and even with some very bullish news in the market for Minneapolis wheat the spreads should eventually adjust. As of this writing we are seeing swings in the spreads well over $5.00! This is much above normal and spreads should eventually correct.

Too good to be true? Maybe. It’s certainly important to remember that there are good reasons to be positive in wheat, especially Minneapolis wheat. It’s rumored that the US is in the market for high protein wheat from Germany and Argentina is temporarily halting new export licenses for a few weeks which is a reflection of the overall world problems with supplies. A number of unknown factors still exist as well, most importantly how will the next Aussie crop perform? But in the end, the historical price difference between the two should remain relatively constant. The extended trading ranges, spike in required margin and positive world influences won’t make. As I’m typing this I’m being filled at $2.58 in July and $5.24 in May and the floor traders won’t be held in anything I’m throwing at them so make sure you are using a good broker that can work these markets for you and as a reminder, there is no break on required margins for these spreads.

Technically, May CBOT wheat looks to have support at 1003 then again near 950. In Minneapolis charts show support around 1480 then 1402 in May.

If you cannot view the Wheat Chart, go here.

Technology at it's BEST!

The perfect execution platform for the electronic futures trader looking for SPEED and RELIABILITY. Arc Capital Management is an Independent Introducing Broker providing institutional clients, professional traders and financial investors with the means to help you achieve your goals. Try our Complimentary Platform Demo.