SRW is the most manipulated market in the free world. There is no reason for it to be much above $3 or $4. However, the CME has built in storage charges to address convergence which has led to massive hoarding of SRW. Therefore end users can not pry it out of commercial storage at nearly any price. Ironically this has led to basis levels which are just plain stupid high. What a mess. I would not touch CBOT SRW contracts unless you will have the physical to back it up.
So are you saying wheat should be $3-4 and corn should be $5.-6, or that corn should be lower, or do you think their respective prices should correlate less than they do now?SRW will likely not go much below corn on the cash market due to the need for feedgrains directly south of here to SW MO and NW Ark. Also if SRW were 3-4 how many ethanol plants would be using it?
Good questions. I struggle with the SRW-corn relationship. I am surprised they are as correlated as they are. I don't see much increase in feed use of SRW when it dips below corn values. The whole wheat ethanol idea is not valid. The Andersons used a 10% blend in 2010 for a short time. Corn starch is the sweet spot for ethanol. All I know is that Toledo (and many other new delivery points) are full of wheat and are raking in huge profits for storage. At the same time we have basis levels that are telling us to plant more. I can atually make more money storing my wheat (with the carry) than I can raising it. That is a screwed up market.
