Waiting for a Reversal
The IMC blog is holding a short position in the May Minneapolis/Kansas City wheat spread that was entered at +97 cents on February 10th.
The spread has rebounded sharply over the last two weeks and is testing the contract highs. Therefore, we are going to liquidate the May spread and set parameters to short the July spread if it backs off.
We’ve established before that the Minneapolis hard red spring wheat is currently too pricey in comparison to the Kansas City hard red winter wheat. It’s been this way for months, though. While we still intend to be short, a breakout to new contract highs could keep it running indefinitely. Hence, the strategy of waiting for the July spread to start back down before getting short again.
Exit the hypothetical short position in the May Minneapolis/Kansas City wheat spread at the market-on-close on Tuesday, April 25th.
Place a new order sell one July Minneapolis wheat contract and simultaneously buy one July Kansas City wheat contract if the spread closes below +$1.10. If filled, risk a two-day close of three cents above the spread contract high that precedes the entry (currently at +$1.20 cents).