The Inversion May Be Over
The December KC/Chicago wheat spread closed at +7 cents (premium KC wheat) on September 4th. This put the spread above the August 31st bounce high. It was also the first close above the declining 50-day Moving Average since mid-May. Therefore, the blog initiated a hypothetical long position right on front of the holiday weekend. We will initially risk a two-day close below -14 1/4 cents (premium CBOT wheat).
After an inversion, the KC/Chicago wheat spread normally returns to where KC wheat has a premium of 35 cents or more over the Chicago wheat. It would not take much for the spread to return to this level. Once it does, we will have to decide whether or not to just bag the profit or hang on for more potential upside. We will simply monitor the price behavior to make this decision.