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Grains & Beans


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Grains & Beans

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  #261 (permalink)
Hiraphor
London, UK
 
 
Posts: 35 since Apr 2021
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Hiraphor View Post
Cocoa March-May '22 spread looking wild. Does anyone have any idea why March is trading at a ~50 discount to May?

Storage doesn't seem that expensive and fundamentals seem pretty normal so my theory is just recent volatility caused it to be disjointed. Scaling in a short position as spread should collapse when fundamental come in to play as March comes closer to delivery.

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  #262 (permalink)
Hiraphor
London, UK
 
 
Posts: 35 since Apr 2021
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Hiraphor View Post
Storage doesn't seem that expensive and fundamentals seem pretty normal so my theory is just recent volatility caused it to be disjointed. Scaling in a short position as spread should collapse when fundamental come in to play as March comes closer to delivery.

Update: sold on a fairly meagre profit, on second thoughts wasn't a fan of storage numbers.. :P I'm not really a fan of seasonal trading at the moment, it seems to be having weak performance and the portfolio is being carried by algo trading.

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  #263 (permalink)
Hiraphor
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Interesting to observe that the wheat Dec'22 March'23 spread has inverted. Currently it's trading at -26, with dec at a significant premium to march implying a negative cost of carry. Not sure why - this should be a new crop to new crop spread, so new supply shouldn't be coming to market. Any ideas? Looking to buy a few at these prices.

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  #264 (permalink)
 SMCJB 
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Just saw this... related?

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  #265 (permalink)
Hiraphor
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Thanks for the diagram. The thing is, the Russian/Ukranian crop harvest is around July time. By December it shouldn't matter - the harvests are all done, so it should just be storage by that point. If you don't make any money by storing from Dec to March then there won't be storage, so it really doesn't make sense to me.

Edit: I wonder if it could be a dislocation due to liquidity challenges which will resolve itself.. thoughts on taking a position anyone?

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  #266 (permalink)
 SMCJB 
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Not a grain guy, so just thinking out loud. What would happen if the Russian/Ukraine 2022 crop was not planted/ruined/sanctioned but the 2023 was back to normal? Wouldn't that cause Z22 to spike vs H23?

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  #267 (permalink)
Hiraphor
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SMCJB View Post
Not a grain guy, so just thinking out loud. What would happen if the Russian/Ukraine 2022 crop was not planted/ruined/sanctioned but the 2023 was back to normal? Wouldn't that cause Z22 to spike vs H23?

If Dec22 was sanctioned but Mar23 wasn't then sure that would explain the discount, but I would find that hard to believe. Harvests happen in July so with no new supply coming between Dec and March I'm really confused by why it would blow out.. Not sure if this is a really good trade or if I'm being an idiot haha

I also wonder if it could have been a market participant blowing up/stopping out which caused it to drag this low... I feel like this is either the trade of the year or I must be really missing something

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  #268 (permalink)
 SMCJB 
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All I know is the oil market is doing things never seen before, so wouldn't be surprised if the same is happening in other markets. For example...


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  #269 (permalink)
Hiraphor
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SMCJB View Post
All I know is the oil market is doing things never seen before, so wouldn't be surprised if the same is happening in other markets. For example...


Yeah the market is definitely wild at the moment, but the reason why I really like this spread is because it's backed strongly by fundamentals - if December is at a premium, then wheat producers who harvest around July time have no incentive to pay for storage until March, and hence historically the spread has only been this low when it has been dislocated... for this spread to move by 15 in the space of a few hours.. I feel like a market participant has imploded or something

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  #270 (permalink)
 SMCJB 
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That chart I showed above. Settle last night was $4.27. Current bid/ask is $8.20/8.25. So the butterfly that has a 30 year range of -$4 to +$4 has moved $4 this morning! I'm sure that liquidations is part of the factor, just saying it's happening everywhere.

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