Long-term investors in the commodity sector should weigh decisions based on reads on real supply and demand.
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Both winter wheat futures markets are nearing the end of the latest CME “evaluation period” for Variable Storage Rates.
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As you know, both sets of winter wheat futures are nearing the end of their latest Variable Storage Rate (VSR) tracking periods. This one began on Wednesday, March 19 and runs through Friday, April 25. This “evaluation period”, as the CME phrases it, has been tracking the hybrid (old-crop/new-crop) winter wheat May-July futures spreads. The program is set up to track the “running average percent of Full Carry”. If on the end date (April 25) this running average is 80% or greater, then the Maximum Premium (Storage) Charge will increase on Monday, May 19. (Storage rates would decrease if the running average is 50% or less and stay the same if between 50% and 80%.) Given the soft red winter (SRW) market has already seen a storage rate increase while the HRW market has not, we are dealing with two different possibilities:
