Trade in the Minneapolis Grain Exchange March spring wheat futures contract remained volatile on Tuesday as traders exited positions before the first notice day for deliveries on Friday, traders and analysts said.
MGE March spring wheat soared on Monday to $25 per bushel, a record-high price for any US wheat futures contract. But it backed down Tuesday to $22.40, plunging $1.60, nearly 7 percent, from Monday's settlement of $24.
The spread, or price difference, between the MGE March and May contracts closed near $4, premium March - narrowing sharply, after stretching to nearly $7 at Monday's close.
Traders said gyrations in the spread were making it difficult to predict whether or not there would be any deliveries on Friday. As of Tuesday, traders said they expected spring wheat deliveries of up to 500 contracts, with one Minneapolis trader narrowing the range to 200 to 400 lots.
However, others said the cash market for spring wheat remained strong enough to discourage firms holding short futures positions from delivering any wheat. During the delivery period, which lasts two to three weeks, the futures market acts like a cash market. Traders holding short futures positions in March can issue intentions to deliver the physical commodity, and those holding the oldest-dated longs must accept delivery.
Those holding short positions have an incentive to deliver wheat when the futures price is higher than the price in the cash market. Spring wheat with the par grade of 14 percent protein was bid in the Minneapolis cash market at a basis of $4 to $4.25 over the May futures contract on Tuesday, or roughly $22.50.
"When the Minneapolis March was $7 over May - spring wheat was not worth $7 over the May. They may have overstepped it, and Minneapolis March futures may have become the best sale," said Roy Huckabay, an analyst with the Linn Group in Chicago.