wheat - EU -US price descrepency

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#1 Wed, Jun 15, 2011 - 7:08am
Dimo784
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wheat - EU -US price descrepency

Hello everybody,

I just wanted to share what I have noticed recently and to ask for your opinion - here is it:

The largest stock exchange that trades wheat in Europe is located in Paris, in the last 10 years the average difference in prices of wheat between Paris and Chicago have been more or less in the vicinity of 4%. From yesterday the price in Paris in euros (1.44$) was greater than the price in $ in Chicago. Meaning the difference was approximately 40%. Theoretically this could mean:

A) The prices in Paris are about to plunge

B) The prices in Chicago are about to skyrocket

C) There is no correlation.

My personal opinion is B) however I'm speculating on the long side of wheat for over a year and a half now, so I could be bias.

I would greatly appreciate your opinions on the topic.

Thank you.

Sincerely,

Edited by: Dimo784 on Nov 8, 2014 - 5:18am
Wed, Jun 15, 2011 - 10:34am
Vypuero
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I don't know about Paris vs.

I don't know about Paris vs. Chicago but I do have a question since you have experience in Wheat. From a previous review of recent trends it looks like Wheat is approaching a trading range bottom now - time to go long? Here is a daily chart of Sept wheat:

Wed, Jun 15, 2011 - 11:05am (Reply to #2)
Dimo784
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My guess is either now(by

My guess is either now(by weeks end), or probably early August. I'll monitor the situation and will report if I open new positions. 

Wed, Jun 15, 2011 - 12:44pm
Vypuero
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Ok thanks - I may open one

Ok thanks - I may open one anyway see what happens... Is the month important like for corn? For instance I was considering getting a September contract

Wed, Jun 15, 2011 - 10:34pm
Art Lomax
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EU wheat

Dimo,

There are different types of wheat, Chicago wheat being a soft wheat of lower milling quality. I'm no expert but probably EU wheat has a higher protein and better milling qualities and has a price premium, like our hard red wheat that trades on the Kansas City Board of Trade at a premium. Minneapolas wheat commands an even higher premium.

Wed, Jun 15, 2011 - 10:41pm
Art Lomax
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Wheat

Vypeuro,

Agree wheat in a trading range and close to a buying opportunity, March lows should hold. It is harvest

so I would expect a lot of selling on 30-40c rallies. Not sure I want to get real bullish wheat here.

Thu, Jun 16, 2011 - 4:14am (Reply to #5)
Dimo784
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Art, definitely there are

Art,

definitely there are different types, as there are different types of gold coins. However if the premium of one over the other skyrocket that may be saying something. In grains this is what I'm trying to find out.

Thank you for your reply and your interest.

Thu, Jun 16, 2011 - 1:15pm
Vypuero
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Wheat took a big hit so I

Wheat took a big hit so I took a gamble for some Wheat at $715 - there was this big spike down, and the 20 range was the lows in March, so if this was just a brief "hit" and not something major I didn't hear about I should be ok... Actually it hit $712 but was not liquid at that price I could not buy any.

Thu, Jun 16, 2011 - 2:09pm
davefess
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Going long soon?

I learned quite a bit this month. I panicked and now I am watching my 7.00 july wheat put actually up quite a bit, after I sold with only a $200 profit. Anyway I thought the fundamentals would win out and wheat would see higher possibly 9.00 like earlier in year( again jul contract). So that being said, looking to go long pretty soon. I think. Anyone think we see 6.50?

"it's game over man, game over!"
Thu, Jun 16, 2011 - 2:18pm
Vypuero
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I don't know I am betting I

I don't know I am betting I bought near bottom but I put in a stop at $7 in case I am wrong. Now it is looking like I was - last tick was $7.03 jeesh!

Fri, Jun 17, 2011 - 5:28am (Reply to #10)
Dimo784
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Gentlemen, I just increased

Gentlemen,

I just increased my wheat holdings 20% and removed my stops. If I go bore I'll start growing vegetables :).

Just a disclaimer: I tend to move too early, still as usual I'm confident now is the right time.

Good Luck,

Fri, Jun 17, 2011 - 2:00pm (Reply to #11)
Buford
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wheat

I farmed for many yrs and have traded/hedged grain and livestock since 1981. I believe in seasonal trades (although distorted by Benny and the Inkjets the last few yrs) and at certain times of the yr my antenna goes up. I couldn't help but put my two cents into

this thread. One of the best seasonal trades for wheat goes like this: Let the June trading range develop for Chi December Wheat.

When it breaks out of that range go with it. In the past, it is normally a sell signal (pre Benny) as it takes out the June low. Be patient and let the market work for you. Your stop is the previous four weeks highs (if selling) and 4 week lows (if buying). Continue

moving the stops as the trade progresses. In the past wheat can remain oversold forever so don't be so quick to take profits even if the Slowed Stochastics or whatever indicator you use is deeply oversold. It has been my experience that if it is a sell signal be out in the month of october. This trade works IMO simply because as the unknowns become known (yields) that the price drops accordingly. When it happens to be a buy signal it can really get hopping (look at last yr). when that is the case the 4 wk stop works as good as any for taking profits.

In order to make this trade a little more profitable I use the Dec/Chi contract as the trigger and then sometimes use the Mpls or KC contract as the vehicle. For instance this spring the HRS Wheat (Mpls) areas have had WAY too much moisture this yr and therefore the acres are way down. The HRS wheat is the most desirable wheat and hardest to substitute. Additionally if the trade triggers a Sell Signal then most yrs you are just as well off selling the Chi Wheat as any. The next couple yrs may be the exception as MPLS Wheat will more than likely be the one to sell as it is at a very high premium to Chi/KC wheat. If you are new to the Wheat you should know that MPLS Wheat/CHI Wheat is not normally at that much price difference. It will, however take a good yr or two of excellent growing conditions in North Dakota and South Dakota to bring this back in line to historic spread relationships.

This got a little long but hope this helps some.

Buford

Fri, Jun 17, 2011 - 3:59pm
Vypuero
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Buford I think I am going to

Buford I think I am going to review what you said and see what I come up with and get back to you to see if I understand it correctly.

Sun, Jun 19, 2011 - 11:21pm (Reply to #12)
Chi-Town Deadhead
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Buford, Thanks for the

Buford,

Thanks for the information. It is a very interesting approach and will give it some thought working it into my trading. Currently I day trade Chicago Wheat as it has the highest volume. I have been doing it for over a year and a half now and have become much more informed over that time. I will also trade a long term contract in a separate account. I currently have a Sept. Long contract which I jumped the gun on. I am a little worried about it since we crossed an ascending trend line using the Nov. 16, 2010 low and the March 16, 2011 low for the basis. If we close above 694 today 6/20, I will feel better about it. 

This is why I typically day trade it as I am not the most comfortable holding over night but with 1 contract I can certainly deal. 

I am very happy to find this forum as there are very few I have found for trading Wheat. If anyone has other sites please let me know.

Good luck to all and I hope I will be able to contribute more to this forum.

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