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A New Normal?

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For centuries we've seen millers/end users pay up for protein in the wheat market. Not this year, nor, as it appears, for new crop 2020, 2021 and 2022. The September futures are currently posting a difference of 86 cents premium Chicago over Kansas City while July 2020 45 cents, 2021 almost 31 cents and 2022 37 cents. In the past Kansas City typically held at 20 to 25 cent premium to Chicago. What gives? Why aren't the deliverable elevators railing in hard red wheat to optimize return for their shareholders. Privately owned concerns can do whatever they want yet publicly traded concerns will need to answer to their shareholders as per why they didn't use all of the arrows in their quiver to increase their storage income. We are presently at the cheapest variable storage rate allowable for Chicago stocks. There is room to rise!

The only major class of wheat not deliverable against Chicago is soft white. The contract allows for hard red , soft red, spring and durum to be deliverable. Historically,the lower the protein the higher the yield and it should make economic sense for some hard red areas to switch to soft red in the next few years Maybe something is amiss with the vomitoxin variable? As we approach September deliveries will we see the powers that be police the contract like they did in previous years when "squeezing" a contract did not make economic sense. Or are we inverting like the yield curve and falling through the rabbit hole?

The National Weather Service continues to predict in its 6 to 10 day forecast for warmer and wetter conditions to prevail in the Heartland. This remains very conducive for corn and bean development and might keep nearby contracts slipping spreadwise.

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About the author

Steve Bruce comes from the cash grain side of the market working for General Mills at the ChicagoBoard of Trade in the summers in the 1970's calling the country to buy wheat at cheap basis levels and with Illinois Grain learning the barge trade. He then spent the 80's , 90's and 00's servicing commercial clients with Geldermann and Man Financial from the trading floor of the Chicago Board of Trade shared market perception via print and electronic media. Steve takes a fundamental approach to market analysis. He completed his undergrad at Marquette and MBA at De Paul. Steve believes in the free market, Chicago School of monetary policy, and less government involvement and intervention in the grain markets. He is risk adverse but emphasizes spread trades for optimal hedging profitability. Steve can be contacted at 312 985 0156 or 888 391 7894 or email him at
Contributing author since 06/14/2018 

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