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Is KC-Chicago Wheat Spread Low Hanging Fruit or The Forbidden Apple?


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The front month CBOT Chicago futures wheat spread tested resistance above -10 cents (-7.75 high on 3/11/19) but was quickly rejected in the ides of March. The KC-ZW spread subsequently traded lower to fresh multiyear contract lows of -37 cents under (last week). As I have continuously pointed out in my Wheat Spread Outlook, the US wheat complex finds itself arbitraging costs of carry into the cheapest means of storage. This favor rolling long (KC) wheat positions into the Chicago contract, and is likely attributing to the rather extreme narrowing of this spread in recent months. From a technical perspective there is a statistical extreme in price occurring in the spread with the contract lows of -37 cents and relative contract highs of +35 cents, this market could be oscillating around 0.0 (even money) with a 35-cent standard deviation. Buyers beware, as the trend is...

Dan's full "Spread Outlook" is available for download, including an indepth look into the most liquid spreads and market conditions that might present opportunities for spreading! Complete with charts and cost of carry calculations!

http://intranet.zaner.com/uploads/dhussey/SprdOut/Spread_Outlook_4.12.2019.pdf



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About the author


Dan began his career in 2006 as an arbitrage and clearing clerk for Spyglass Options in the Eurodollar futures options pit on the floor of the Chicago Mercantile Exchange. Taking his employing brokers advice, Dan soon left the floor to pursue a career “behind the screens upstairs”, as there was an inherent lack of opportunity for market making in open outcry pits. After graduating from the University of Notre Dame in 2009 (and for the subsequent 10 years), Dan leveraged his IT background in networking and computer programing to begin developing computerized trading algorithms and trading systems for multiple private equity firms and his own account. He eventually found his specialization in trading carry trade dynamics in currency and interest rate futures; while simultaneously building his experience in trading both inter-market and intra-market spreads. His trading experience later expanded to include most commodity spreads, with an emphasis on carry trade economics in agricultural commodities. In 2016 Dan decided to take his career full circle by becoming a series 3 and 34 licensed broker; and expanded his outreach to the agriculture production community. In 2018, he joined Zaner Financial Services Ag Hedge division, bringing his knowledge and expertise of carry trade economics and continues expanding exposure to spread markets. Dan can be reached at (312)277-0110 by phone, @DanielHusseyJr on twitter, and emailed at dhussey@zaner.com.
 
 
Contributing author since 2/15/2019 

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