Keep a fleeting eye on the COT for both Chicago (soft wht) and also Kansas (hard wht). It is interesting keeping an eye on the basis between these two complexes. Basis there is usually always in favour of Kansas simply becuase high protein wheat is worth more than lower. When basis weakens considerably it is not uncommon to see the sell Chicago, buy Kansas trade move into favour. High protein wheat carries a higher cost base to produce since protein is a function of nitrogen (the most expesnive input). Similarly think you will find there may have been a decent number of the sophisticates have been long wheat short corn to trade the high likelihood of the traditional spread between the two opening back up as it has. Lower risk trading the spreads for many of the agriculturally literate commodity traders.
How long will basis remain strong? Million dollar question but history dictates it should weaken once harvest begins and cash selling steps up. Peak debt is around about now for all southern Australian farmers so the need for cash is great. Another factor this year is canola prices and barley prices for that matter are crappola so wheat will be sold to buy time on sales on the other two.
If the basis remains strong into harvest then something fundamentally important is unravelling in the trade. At the moment it would seem that China (whose crop sizes are important being the world's largest producer of grain but always a matter of guesswork on size since when you turn into a net buyer you want to keep the sellers guessing how much you will need, India is the same but worse in that sometimes they say they will have an exportable surplus and you will find them buying somewhere down the track).
So if I had to guess, China is awakening to wheat based breakfasts and puff pastry in between? Not to mention noodles are made from wheat.
