Kansas City/Chicago Wheat Spread: Follow the September Spread

We’d Like More Time

Last week the July Kansas City/Chicago wheat spread hit a new contract low of -24 cents (premium CBOT wheat).  The ‘cheap’ got even cheaper.

And on the nearest-futures monthly chart, the KC/Chicago wheat spread is even lower at -31 1/2 cents.  This is only the sixth time in forty-five years that KC wheat has been priced at a discount this big!  Profit opportunity is a brewin’ here, folks.

Kansas City Chicago Wheat spread (nearest-futures) monthly

Kansas City Chicago Wheat spread (nearest-futures) monthly

The blog currently has an outstanding order to buy the July KC/Chicago wheat spread on a recovery of the similar lows established back in November and February.  But the thing is, July grain contracts will have to be rolled in about five weeks and we don’t even have a position in it yet!  So we’re gonna start stalking the September spread for a trade setup instead.

The September Kansas City/Chicago wheat spread bottomed at -3 cents (premium CBOT wheat) on February 17th and bounced.  After breaching this support level at the end of April, the spread failed to recover.  Now that this prior support level has been broken, it turns into a resistance level.

Coincidentally, the May 9th bounce high –which also marks the current high for the month-is located at -3 3/4 cents.  This is just three-quarters of a cent below the February low of -3 cents so it acts as a reinforcement of the resistance level.  Therefore, we can use a close above this level as our trigger to get positioned on the long side of the September Kansas City/Chicago wheat spread.

September Kansas City Chicago Wheat spread daily

September Kansas City Chicago Wheat spread daily

Also, note that the declining 30-day Moving Average is currently located near -6 cents.  To trip the wire on our entry criteria, the spread will have to close above the 30-day MA for the first time since late March.  This could serve as good confirmation.

Trade Strategy:

Cancel the hypothetical order to buy one July Kansas City/Chicago wheat spread.  Work a new hypothetical order to buy one September Kansas City wheat contract and simultaneously sell one September Chicago wheat contract if the spread closes above -3 cents (premium CBOT wheat).  If filled, risk a two-day close of three cents below the contract low that precedes the entry.

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