Technically Speaking

Another Look at the Jul KC Chi Wheat Spread

By  Darin Newsom
Source: DTN ProphetX
Source: DTN ProphetX

My recent On the Market columns (The Trouble with Troubles, Occam's Razor) mention the problems winter wheat has been having of late finding buying interest. This despite possible widespread damage done by continued freezing temperatures across much of the Southern Plains HRW wheat growing area. The most recent query came in Tuesday morning, asking how possible action in the Kansas City HRW market might correlate to what is seen in the Chicago SRW market.

Two weeks ago (Tuesday, April 9) I posted an initial blog discussing the burgeoning uptrend in the July Kansas City/Chicago wheat spread. At that time I concluded that the initial price target was a premium of 40 1/4 cents (Kansas City over Chicago) on its weekly close chart, with a move above that level opening the door to an extended rally to 46 1/4 cents and 52 1/4 cents. A strengthening spread would most likely reflect increased concerns over US HRW production due to weather developments. 

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Since then this spread has followed its expected course, trending up with the July Kansas City contract holding a premium of about 43 cents over the July Chicago. If it closes the week above the 40 1/4 cent level, the possible extended rally becomes more likely. Weekly stochastics (bottom study) for the spread indicate the uptrend may just be gaining momentum. The faster moving blue line (roughly 16.5%) is over the slower moving red line (about 12.3%) meaning a bullish crossover has occurred.

It is important to note that the Kansas City can continue to gain on Chicago even if both markets remain in a downtrend. In order for a contra-seasonal uptrend to emerge, increased buying interest from commercial, but more importantly noncommercial, traders will need to be seen. Last Friday's CFTC Commitments of Traders report showed noncommercial traders continuing to increase their short futures position in both Chicago and Kansas City as of Tuesday, April 16.

To track my thoughts on the markets throughout the day, follow me on Twitter: www.twitter.com\DarinNewsom

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Source: DTN ProphetX 
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john smith
4/23/2013 | 3:05 PM CDT
Well my concern is...when kcbot closes its doors In a couple of months.....this will change the Entire marketing of hrw. One advisory service has commented it will have an effect on the Spread....it will be thrown in with everything Else since the mindset will not be seperate as It is now......as I was told by a friend of mine Who works in the system....comments have Been made at cme. Wheat is wheat isn't it? At least "Watson" thinks so.