There were some nice gains in US wheat futures last night. Seeing the March SRWW contract roll off the board and closing +26.25c/bu higher does tend to make me think “short and caught”, but volume was just 1 lonely contract. Volume in the May slot was healthier, 79,617 contracts (10.82mt) changed hands.
I saw an interesting chart yesterday, it was a crude oil, wheat, spread chart. If you looked at it hard enough, sniffed some glue, dropped some acid and sculled a jaeger bomb, it kind of showed a correlation of wheat rallying after oil rallies, but the most disturbing trend was that these rallies were short lived and sold off hard after reaching their crest. Currently the rally in wheat futures hasn’t really occurred, to the extent that the chart suggests it may. Hold my beer while I roll out my chicken bones and check the tea leaves.

Funds are buying grain futures. They currently hold a long corn position of 193,274 contracts as of March 10th, after buying around 140,000 contracts during the week leading up to the report. This isn’t a record long, but it is a very fast paced buying spree by the funds. Once we see their net long getting closer to 400,000+ it starts to get closer to a very large long position. One contract = 125t of corn.
In early 2008 managed money held a, at the time, a record long position in corn futures (114mt). The fund buying pushed corn higher in Q2, to a record price by June, just before values were halved as the GFC took off. That is the kind of volatility the punters dream about.
The biggest feature of this period was the utter lack of convergence between futures and physical. Something that hasn’t been addressed since. This would tend to indicate that it’s repeatable, but also that if you wanted to benefit from it, the physical market is not where the big kids would be playing. Would bank swaps be the solution. That would greatly depend on if the banks wished to continue to be synthetic basis traders or if they were happy to let those using swaps locally to participate in the synthetics rally. Interesting times we might be about to live through.