Unusual Futures Backwardation in Wheat: Every Farmer Planting Wheat?

A hedge fund friend points out an interesting semi-anomaly in wheat futures prices that he has been trading: You can sell wheat for Mar ’08 delivery at $925/contract, while you can buy July ’08 wheat for $600/contract. That’s a sizable $265 difference per contract, which, as far as futures backwardation goes, is fairly large.

Granted, there are lots of conflicting forces in wheat markets right now, including speculation about the size of the Australian and Canadian wheat harvests, and more musing about the shift from corn to wheat as ethanol demand increases the price of corn. And by way of background, as my friend points out, the spread really started widening from seasonal norms of $20-$30 when the front wheat contracts took off in July/August.

Interesting stuff. Anyone else noticed this? And some more reading:

“Every farmer in the world will plant wheat next year, because the prices are so high,” Roland Jansen, chief executive
officer of Mother Earth Investments AG in Lichtenstein, said in an interview in London today.

Source: Bloomberg
Wheat falls by daily limit on expectations plantings will rise
Oct 3/2007

Source: Reuters
StatsCan to confirm small Canada wheat crop-trade
Oct 1/2007

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Comments

  1. phil says:

    good one kedro!

  2. Ben Hyde says:

    I always use wheat as an example, rather than gold, of a commodity that has very long shelf life – one of the things you look for in a place to store your money – when I’m sketching out the spectrum value stores.