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Dan;
Very informative, that is if I knew what you were
talking about. Sounds like wheat/corn 102, since I have
not taken wheat/corn 101 I am a little confused. At my
age a little confusion is dangerous. The old saying
don't confuse me with the facts, tell me what to do.
If I read between the lines it sounds like you are
saying that playing the wheat corn spread is one step
removed from the roulette wheel.
Norman E.
> Dtrader wrote:
>
> factors to consider in wheat/corn.
> 1) forget exactly who, but one author of a previous
> message to this forum earlier this week grazes on the
> truth with observations regarding
> harvest timing. Equally important that wheat is
> harvested in areas that feed
> substantial amounts of grain (Texas, OK, KS, CO, the
> Southeast). THe basis
> in the summer time for feedgrains must usually be
> high enough to draw
> feedgrains from Nebraska, IA, MN etc in the very same
> areas where the basis
> for wheat must be low enough to create incentive to
> either store the wheat or
> move it to a consuming area or export point (in the
> middle of harvest).
> 2) Wheat can be (and is) fed.
> 3) Key to wheat feeding is keeping the relationship
> at an attractive
> relationship long enough to create incentive for
> feedlots and other producers
> of "rations" to switch in to wheat (typically 3 to 6
> months). Obviously a
> very large "spot" price
> divergence will do the trick (or a more modest
> divergence over a longer
> period of time).
> 4) Once switched, $ incentive also required to
> unswitch.
> 5) one of biggest risks to spread is drought risk for
> corn, after the wheat
> crop is made. (However, this risk is capped by
> virtue of fact that corn
> demand is inherently elastic -- being fed to animals
> -- and wheat demand has
> inelastic base (human demand)) In simpler terms
> humans will never switch
> from wheat to corn but animals will switch from corn
> to wheat or no feed.
> ALthough I don't have longer term charts in front of
> me I would venture that
> the spread has historically only spiked in during
> corn weather events.
> 6) Also keep in mind a wheat bushel is 60 lbs, a corn
> bushel is 56 lbs.
> 7) Commercials have sophisticated models to take
> advantage of above. Recent
> action (spread trading in reasonably defined range)
> suggests that their
> trading may have been a strong factor. -- One could
> make argument that
> biggest money to be made in spread is actually to
> wait for the spikes through
> the bottom of recently traded range (a couple of
> times per decade?) as either
> the amount of money commercials are willing to commit
> to trade is exhausted
> or they are actually stopped out of their positions.
> Although rare those
> opportunities are safer than muni bonds and a lot
> more rewarding.
>
>
> just my (thankfully former) commercial personality
> giving it's 2cts worth.
>
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