The KC Wheat versus Chicago wheat spread is struggling as rain hit the Texas and Oklahoma regions in a timely fashion. The prospect of a drought has weaned along with the prices for KC Wheat. The difference between these two drought monitors really tells a lot of the story.
You can see in the December contract for the KC wheat that the price began to dip again around the approximate time of the much needed rain. The subsequent USDA Supply and Demand reports did little to stop the downward trend, but should little affect on the price gap between the two wheats.
As posted in the October spread update, I made my first entry around -11 and the second around -31 giving me an average of about -21. I still believe this spread has a lot of potential. KC wheat is a higher quality grade than its Chicago counterpart. The regional disparities are playing a short-term role. However, the quality should shine through in the long run.
The contract roll will leave me a break even around -15, which is certainly manageable. The $700 margin and having plenty of excess equity leaves me at least on 1-2 more opportunities to add to the position. I’ll still be aiming to exit the spread around 0.0 for a gain of about $750 (before fees).