Minneapolis/KC Wheat Spread: Use the Ratio for Timing the Entry

Spring Forward

Just a week ago, it was time for us to ‘fall back’ here in the US.  And now we’re less than two weeks out from Thanksgiving!  This brings the Christmas delivery contracts right into view.

Since the futures markets are pricing in the future, we think it’s now time to move our recommendation for a December spread trade into the future as well.  Always good to stay a step ahead of the crowd.

The blog is currently working an order to short the December Minneapolis/Kansas City wheat spread.  We are simply going to move the recommendation over to the March 2017 spread now.

march-minneapolis-kansas-city-wheat-ratio-daily

March Minneapolis Kansas City Wheat ratio daily

The entry parameters for this trade are going to be tweaked slightly.  Initially, we were going to short the December spread once it cracked support at the rising 75-day Moving Average.  The December spread has not done this yet, but the March spread already did this and recovered.  So that’s a failure.

However, the March Minneapolis/Kansas City wheat ratio has held above the 75-day MA this entire time.  It’s been eight months since the ratio last closed below the 75-day MA.  Therefore, we are going to wait for the ratio to break support before initiating a short position in the March Minneapolis/Kansas City wheat spread.

Trade Strategy:

Cancel the hypothetical order to short the December Minneapolis/Kansas City wheat spread.  Place a new order sell one March Minneapolis wheat contract and simultaneously buy one March Kansas City wheat contract if the ratio between the two contracts closes below the rising 75-day MA (currently near 1.19:1).  If filled, risk a two-day close of three cents above the spread contract high that precedes the entry (currently at +$1.07 1/4 cents). 

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