Spread will eventually return to $1.75 premium Wheat
On June 9, the Wheat vs. Corn spread made a new all-time historic low of 40 cents premium Corn. This broke the previous low of 11 cents premium Corn from November 1983. Over the years the lower band in the spread has been around 10 cents premium Wheat, as shown below.
The spread has rallied sharply from the June 9 low and is now about 23 cents premium Wheat. I think it is a fair assumption to say the spread will NOT retest the June low. Unfortunately the forward spreads accept this reality. The December 2011 spread is at about 70 cents premium Wheat. Just four months ago this spread closed at $3.68 premium Wheat.
Tightness in Corn could continue throughout the growing season and this could drive the December 2011 spread toward 40 cents premium Wheat. The new crop spread should be bought in this area. Historically the Wheat vs. Corn spread will return to about $1.75 premium Wheat within a year or two after trading near parity.
Markets: $ZW_F $ZC_F