@sdelsad/commodity-desk-daily 1.0.48 → 1.0.50
This diff represents the content of publicly available package versions that have been released to one of the supported registries. The information contained in this diff is provided for informational purposes only and reflects changes between package versions as they appear in their respective public registries.
- package/covered.md +1 -0
- package/email.html +88 -71
- package/email.txt +466 -375
- package/ep16.html +727 -0
- package/ep16.md +256 -0
- package/ep16.script.txt +111 -0
- package/ep16_chart1.png +0 -0
- package/ep16_chart2.png +0 -0
- package/ep16_chart3.png +0 -0
- package/feed.xml +12 -0
- package/glossary.md +10 -0
- package/package.json +2 -2
- package/ep15.html +0 -716
- package/ep15.md +0 -196
- package/ep15.script.txt +0 -78
- package/ep15_chart1.png +0 -0
- package/ep15_chart2.png +0 -0
- package/ep15_chart3.png +0 -0
package/email.txt
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SOFT COMMODITY TRADING
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Episode
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Episode 16 · Monday 7 September 2026 · 12 min 05
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that unfixed buying is still to come.
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Spreads: Calendar, Inter-Commodity, Inter-Exchange
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Two wheat curves lean opposite ways on the same Friday, and the spread
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between them carries a currency nobody ordered.
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Listen: https://
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Read online: https://storage.googleapis.com/podcast-audio-2647223968/commodity-desk-daily/
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Listen: https://cdn.jsdelivr.net/npm/@sdelsad/commodity-desk-daily@1.0.49/ep16.mp3
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Read online: https://storage.googleapis.com/podcast-audio-2647223968/commodity-desk-daily/ep16.html
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MARKET PULSE
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Wheat lost fifty cents on the week in Chicago, and almost none of it was
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about wheat.
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Monday was Labor Day, so the CBOT day session was shut and Friday's
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settlements are the last prints available. USDA's Crop Progress report moves
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to Tuesday, and the September WASDE lands on Friday 11 September.
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Contract Settle Change
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-----------------------------------------------
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Dec corn, CBOT 536¾ ¢/bu −4
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Nov soybeans, CBOT 1309¾ ¢/bu −6½
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Dec Chicago SRW wheat 734.00 ¢/bu −20¼
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Dec Kansas City HRW wheat 802¼ ¢/bu −13¼
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Dec Matif milling wheat €246.25 /t −2.50
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Dec soymeal, CBOT $355.10 /t −0.40
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Dec soybean oil, CBOT 69.27 ¢/lb −77 pts
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Wheat did the work, and it did it downward: Chicago fell 50 cents on the
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week, Kansas City 42, Minneapolis 24¼. The rest of the board was quiet by
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comparison, with corn effectively unchanged on the week and beans supported
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by a sixth consecutive business day of flash sales — 250,600 t on Friday
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alone, taking the run to 1,347,600 t of soybeans booked to China and to
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unknown destinations.
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The pressure on wheat came from two directions at once, and neither was a
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supply number. On 1 September Moscow cut its export duty on wheat, barley
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and corn to zero through the end of the year; the wheat duty had been RUB
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787.5 a tonne. Then American envoys travelled to Moscow and Kyiv over the
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weekend of 5–6 September.
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The geopolitical read. Set both against what has not changed. More than
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ninety percent of Russia's Azov–Black Sea loading capacity is still offline:
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all three Novorossiysk terminals suspended since mid-August, Taman since
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late July, Azov navigation suspended, Tuapse the only terminal working in a
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basin that shipped 46.3 Mt last season. Russia's August export programme was
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cut to 2.7–3.1 Mt against 4.5 Mt a year earlier. None of that was repaired
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last week.
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So the transmission is not through supply. It is through expectation. A war-
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risk premium is a price paid for disruption a buyer thinks is coming, and
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diplomacy changes what he thinks is coming without mending a single loading
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arm. The duty cut works the same way — it does not create export capacity,
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it lowers the tax on whatever capacity survives, and analysts read it as
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three to four dollars a tonne off Russian FOB offers.
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The evidence that this was an expectation trade rather than a supply trade
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is in the spread. Chicago soft red, the class that competes directly with
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Black Sea wheat for the same export business, fell twice as far as
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Minneapolis spring, which largely does not.
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[chart] Wheat's week, by class — The class that competes head-on with Black
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Sea wheat lost twice what spring wheat lost. The collapse was a
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spread, not a market. — CBOT, KCBT and MIAX settlements, week ending
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Friday 4 September 2026 — https://storage.googleapis.com/podcast-
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audio-2647223968/commodity-desk-daily/ep16_chart1.png
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* A flat price tells you a level. A spread tells you a condition — and the
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condition is usually the tradeable part.
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* Read a calendar spread as a percentage of full carry, never in cents.
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Fifteen cents means nothing until you know that carrying the grain costs
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thirty-three.
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* A carry spread has a ceiling and no floor. Full carry caps it, because
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anyone with a bin can arbitrage past that point. Nothing caps an
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inversion. Long the carry and short the carry are not the same trade run
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backwards.
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* An inter-commodity spread is a distance to substitution. Wheat 27.6
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percent over corn per tonne means the feed bid is nowhere near, so
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nothing is waiting underneath the market to catch it.
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* An inter-exchange spread is an opinion, not an arbitrage. No delivery
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mechanism forces Paris and Chicago together, in either direction, ever.
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* A spread is not a smaller position. The currency arrives free, the
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margin credit buys size, and the correlation holding the two legs
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together is an assumption rather than a contract — one that tends to
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fail exactly when the story that created it resolves.
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Term Meaning
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----------------------------------------------------------------------------
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position
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cured
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CONVERSION DRILL 3 OF 12 — BUSHELS ↔ TONNES, WHEAT AND SOYBEANS
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percent of full carry A calendar spread expressed as a fraction of the
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interest and storage cost of holding the grain to the
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later month — how the trade actually quotes a curve
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bull spread A calendar position long the nearer month and short
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the deferred, which profits when the carry narrows or
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the curve inverts
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bear spread A calendar position short the nearer month and long
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the deferred, which profits when the carry widens
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toward full carry
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leg One of the individual contracts making up a spread,
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each executed and margined in its own right
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legging in Executing a spread one leg at a time rather than as a
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single spread order, accepting outright exposure in
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between in exchange for a better fill
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spread margin credit The reduction in initial margin an exchange grants a
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recognised spread, which lowers the cost of a
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position without lowering its risk per tonne
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wheat–corn spread The price difference between wheat and corn futures,
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read as the distance wheat must still fall before
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feeders substitute it into a ration
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FX leg The currency exposure that arrives unbidden in an
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inter-exchange spread whose two legs settle in
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different currencies
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relative value A position expressing a view on the difference
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between two prices rather than on the direction of
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either
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convergence The pull of a futures price toward the cash value of
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its deliverable as delivery approaches, which
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disciplines a calendar spread and has no counterpart
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across two exchanges
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CONVERSION DRILL 4 OF 12 — CENTS PER BUSHEL ↔ DOLLARS PER TONNE
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===============================================================
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Rule:
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Rule: ¢/bu × 0.394 = $/t for corn · ¢/bu × 0.367 = $/t for wheat and
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soybeans
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Fast method:
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Fast method: corn: ×0.4, then shave 1.5%. Wheat/soybeans: ×0.37, i.e. take a
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third and add a tenth of it.
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* Corn at 465¢ → 186 − 3 ≈ $183/t
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* Soybeans at 1,182¢ → 394 + 39 ≈ $434/t (exact 434.0)
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* Wheat at 651¢ → 217 + 22 ≈ $239/t (exact 239.1)
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Why it matters:
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Why it matters: Chicago quotes cents per bushel, the rest of the world
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quotes dollars per tonne. Every export conversation crosses this line.
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QUIZ
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====
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Q1.
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Q1. On Friday 4 September, Chicago December wheat settled at 734.00 ¢/bu and
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Matif December milling wheat at €246.25/t, with the euro at $1.1629. A
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relative-value desk thinks the European market is too dear against Chicago
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and sells the premium in 30,000 t: short Matif December, long CBOT December,
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equal tonnage. Use 36.744 bu to the tonne.
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* What is the
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the
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* What is the Matif premium over Chicago, in euros per tonne, at the
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moment the trade goes on — and how many contracts is each leg?
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* Two weeks later Chicago December is 772.00 and Matif December is
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€243.00, with the euro at $1.1900. What is the P&L on the spread, in
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euros?
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*
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day one." Would that have removed the exposure — and what would the mill
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have been left holding at fixation?
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* Of that P&L, how much came from wheat and how much from the currency?
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futures?
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Q2. Chicago December wheat settled at 734.00 ¢/bu and March 2027 at 749.25
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¢/bu. Money costs 5 percent and commercial storage runs 8 ¢/bu per month.
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What percentage of full carry is the December–March spread paying?
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Q3.
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Q3. The cotton on-call report of 21 August 2026 showed March 2027 carrying
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12,519 lots more unfixed sales than unfixed purchases. Does that balance
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represent latent buying or latent selling in March futures?
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Q4. A coffee exporter has sold on a buyer's-call price-to-be-fixed contract
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and is fully hedged with a short futures position. The market rallies thirty
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cents a pound before the buyer fixes, and he remains flat on price
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throughout. Which exposure has grown?
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Q5. Conversion drill.
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Q5. Conversion drill. Kansas City December hard red winter wheat settled at
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802.25 ¢/bu. What is that in dollars per tonne?
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============================================================================
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237
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-
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|
238
|
-
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239
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-
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|
240
|
-
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241
|
-
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242
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-
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|
243
|
-
|
|
244
|
-
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|
245
|
-
|
|
246
|
-
|
|
247
|
-
|
|
248
|
-
|
|
249
|
-
|
|
250
|
-
|
|
251
|
-
|
|
252
|
-
|
|
253
|
-
|
|
254
|
-
|
|
255
|
-
|
|
256
|
-
|
|
257
|
-
|
|
258
|
-
|
|
259
|
-
|
|
260
|
-
|
|
261
|
-
|
|
262
|
-
|
|
263
|
-
|
|
264
|
-
|
|
265
|
-
|
|
266
|
-
|
|
267
|
-
|
|
268
|
-
|
|
269
|
-
|
|
270
|
-
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|
271
|
-
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|
272
|
-
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|
273
|
-
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274
|
-
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275
|
-
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276
|
-
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277
|
-
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278
|
-
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279
|
-
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280
|
-
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|
281
|
-
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|
282
|
-
|
|
283
|
-
|
|
284
|
-
|
|
285
|
-
|
|
286
|
-
|
|
287
|
-
|
|
288
|
-
|
|
289
|
-
|
|
214
|
+
A1. The trade is three positions wearing the costume of two. Work each leg
|
|
215
|
+
in its own currency and convert once, at the end — that discipline is what
|
|
216
|
+
makes the third part of the question answerable at all.
|
|
217
|
+
|
|
218
|
+
The premium on day one. Chicago has to be dragged into Paris's units before
|
|
219
|
+
the two numbers can be compared.
|
|
220
|
+
|
|
221
|
+
Step Value
|
|
222
|
+
--------------------------
|
|
223
|
+
CBOT Dec 734.00 ¢/bu
|
|
224
|
+
× 36.744 bu/t $269.70 /t
|
|
225
|
+
÷ 1.1629 $/€ €231.92 /t
|
|
226
|
+
Matif Dec €246.25 /t
|
|
227
|
+
Matif premium €14.33 /t
|
|
228
|
+
|
|
229
|
+
The legs. 30,000 t × 36.744 = 1,102,320 bu, which at 5,000 bu a lot is 220
|
|
230
|
+
lots of CBOT wheat. The Matif contract is 50 t, so the other leg is 600
|
|
231
|
+
contracts. Note that 220 lots is 1,100,000 bu, or 29,937 t — the hedge does
|
|
232
|
+
not fit the tonnage exactly, and on a spread that residual is an outright
|
|
233
|
+
position in Chicago, small but real.
|
|
234
|
+
|
|
235
|
+
The P&L. Recompute the premium on the new prices and the new rate.
|
|
236
|
+
|
|
237
|
+
Day one Two weeks later
|
|
238
|
+
-----------------------------------------
|
|
239
|
+
CBOT Dec 734.00 ¢/bu 772.00 ¢/bu
|
|
240
|
+
CBOT in $/t $269.70 $283.66
|
|
241
|
+
EUR/USD 1.1629 1.1900
|
|
242
|
+
CBOT in €/t €231.92 €238.37
|
|
243
|
+
Matif Dec €246.25 €243.00
|
|
244
|
+
Premium €14.33 €4.63
|
|
245
|
+
|
|
246
|
+
The desk was short the premium, so it profits as the premium narrows: €14.33
|
|
247
|
+
− €4.63 = €9.70/t, and on 30,000 t that is €291,000.
|
|
248
|
+
|
|
249
|
+
Wheat versus currency. Hold the exchange rate at 1.1629 and run it again.
|
|
250
|
+
Chicago at $283.66 would have been €243.93, so the premium would have gone
|
|
251
|
+
to €243.00 − €243.93 = −€0.93 — Chicago above Matif, a €15.26 narrowing,
|
|
252
|
+
worth €457,800.
|
|
253
|
+
|
|
254
|
+
The euro took the difference: €457,800 − €291,000 = €166,800, more than a
|
|
255
|
+
third of the wheat P&L.
|
|
256
|
+
|
|
257
|
+
The trap the question is testing: the desk put on a wheat trade and was paid
|
|
258
|
+
in wheat and in euros, in roughly two parts to one. Long CBOT is long a
|
|
259
|
+
dollar-denominated asset — about $8.1 million of it on 30,000 t — and the
|
|
260
|
+
euro strengthened. Nobody sized that position, nobody approved it, and it
|
|
261
|
+
does not appear on a wheat risk report. It arrived attached to the spread.
|
|
262
|
+
The fix is a separate FX hedge on the euro value of the dollar leg, rolled
|
|
263
|
+
as the leg's value moves; the mistake is believing that a spread whose two
|
|
264
|
+
legs are equal in tonnes is a position that is flat in anything.
|
|
265
|
+
|
|
266
|
+
A2. Full carry is what it costs to own the grain for the three months
|
|
267
|
+
between the contracts.
|
|
268
|
+
|
|
269
|
+
¢/bu
|
|
270
|
+
---------------------------------------------
|
|
271
|
+
Interest: $7.34 at 5% for three months 9.18
|
|
272
|
+
Storage: 8 ¢/bu × 3 months 24.00
|
|
273
|
+
Full carry, Dec to Mar 33.18
|
|
274
|
+
|
|
275
|
+
The market is paying 749.25 − 734.00 = 15.25 ¢. So 15.25 ÷ 33.18 = 46
|
|
276
|
+
percent of full carry.
|
|
277
|
+
|
|
278
|
+
Read it: the market is covering slightly under half the cost of storing
|
|
279
|
+
wheat until March. Near full carry — above roughly 80 percent — the market
|
|
280
|
+
is paying almost anyone to take grain off its hands, which is what a glut
|
|
281
|
+
looks like on a curve. Under half, storing is a losing business and the
|
|
282
|
+
market would rather the grain moved now. Forty-six percent is an ordinary,
|
|
283
|
+
adequately supplied market with no urgency in either direction.
|
|
284
|
+
|
|
285
|
+
The second half of the reading is the asymmetry. That 46 percent can rise to
|
|
286
|
+
about 100 and then stops, because past full carry anyone with an empty bin
|
|
287
|
+
buys December, stores the wheat, sells March and collects the difference
|
|
288
|
+
risk-free. There is no equivalent force on the way down. The spread can go
|
|
289
|
+
to zero and invert without limit. A bear spread — short the front, long the
|
|
290
|
+
deferred — is therefore a bounded trade; a bull spread is not.
|
|
291
|
+
|
|
292
|
+
A3. Latent buying, and the direction is the part that catches people.
|
|
293
|
+
|
|
294
|
+
An unfixed sale is cotton a merchant has sold to a mill at a differential,
|
|
295
|
+
with the mill holding the right to fix. The mill has the cotton and has not
|
|
296
|
+
priced it, so its cost rises with the board. To stop that, it must
|
|
297
|
+
eventually buy futures. Net 12,519 lots of unfixed sales in March 2027 is
|
|
298
|
+
therefore 12,519 lots of buying that has to arrive in the March contract
|
|
299
|
+
before first notice day, whatever the mills would prefer.
|
|
300
|
+
|
|
301
|
+
The trap is symmetry: an unfixed purchase — a merchant who has bought from a
|
|
302
|
+
grower with the grower holding the right to fix — is the mirror image, and
|
|
303
|
+
resolves as latent selling. Reading the total instead of the net, or reading
|
|
304
|
+
the net with the sign backwards, turns a forced-buying signal into a forced-
|
|
305
|
+
selling one.
|
|
306
|
+
|
|
307
|
+
A4. Credit — and, alongside it, cash.
|
|
308
|
+
|
|
309
|
+
He is flat on price: the physical sale and the short futures move against
|
|
310
|
+
each other cent for cent, which is exactly what the hedge is for. But a
|
|
311
|
+
thirty-cent rally on a 37,500 lb Coffee C contract is 30 × 375 = $11,250 a
|
|
312
|
+
lot, and his short hedge pays that out in variation margin, in cash, every
|
|
313
|
+
day the market goes up. The buyer, who holds the winning side of the unfixed
|
|
314
|
+
leg, has posted nothing at all — his gain sits as an unrealised claim
|
|
315
|
+
against a contract, not as money in an account.
|
|
316
|
+
|
|
317
|
+
That is the structure worth remembering: fixing risk is sold as market risk
|
|
318
|
+
and settled as credit risk. The exporter's exposure is no longer to the
|
|
319
|
+
coffee price but to whether the buyer is still solvent and still willing to
|
|
320
|
+
fix when the time comes — and that exposure grows by $11,250 a lot for every
|
|
321
|
+
thirty cents the market rallies. The desk that funds the margin call is
|
|
322
|
+
carrying the counterparty, not the market.
|
|
323
|
+
|
|
324
|
+
A5. Wheat converts at 36.744 bu to the tonne, so cents per bushel become
|
|
325
|
+
dollars per tonne by multiplying by 0.36744.
|
|
326
|
+
|
|
327
|
+
$8.0225/bu × 36.744 = $294.78 /t.
|
|
328
|
+
|
|
329
|
+
Mentally: take a third of 802 and add a tenth of that third — 267 + 27 ≈
|
|
330
|
+
294. Close enough to quote across a desk, and worth carrying because Kansas
|
|
331
|
+
City trades in cents while the buyer in Algeria or Nigeria is thinking in
|
|
332
|
+
dollars a tonne.
|
|
290
333
|
|
|
291
334
|
|
|
292
335
|
THE EPISODE, IN WRITING
|
|
@@ -294,178 +337,226 @@ THE EPISODE, IN WRITING
|
|
|
294
337
|
|
|
295
338
|
|
|
296
339
|
|
|
297
|
-
|
|
298
|
-
|
|
340
|
+
One market, two months
|
|
341
|
+
----------------------
|
|
342
|
+
|
|
343
|
+
The simplest spread there is: one contract, two delivery months.
|
|
299
344
|
|
|
300
|
-
|
|
301
|
-
|
|
345
|
+
Chicago December wheat settled at 734.00 ¢/bu on Friday. March 2027 settled
|
|
346
|
+
at 749.25. March is 15¼ cents over December, which is another way of saying
|
|
347
|
+
the market will pay you fifteen cents to hold the wheat for three months
|
|
348
|
+
instead of selling it now.
|
|
302
349
|
|
|
303
|
-
|
|
304
|
-
|
|
305
|
-
|
|
306
|
-
is no reason for it beyond history: 480 lb is what a compressed bale weighed
|
|
307
|
-
when the standard was written, and the trade never revisited it. The
|
|
308
|
-
practical consequence is that a cotton desk converts between bales and
|
|
309
|
-
pounds continuously, because the fundamentals arrive in one unit and the
|
|
310
|
-
hedge is denominated in the other.
|
|
350
|
+
Is fifteen cents a lot? On its own the question has no answer. It needs a
|
|
351
|
+
yardstick, and the yardstick is what holding the wheat actually costs: money
|
|
352
|
+
and space.
|
|
311
353
|
|
|
312
|
-
|
|
313
|
-
|
|
354
|
+
¢/bu
|
|
355
|
+
--------------------------------------------
|
|
356
|
+
Interest on $7.34 at 5%, three months 9.18
|
|
357
|
+
Commercial storage, 8 ¢/bu/month 24.00
|
|
358
|
+
Full carry 33.18
|
|
359
|
+
|
|
360
|
+
Fifteen and a quarter against thirty-three and a fifth is 46 percent of full
|
|
361
|
+
carry, and that is the number a desk actually says out loud. Nobody quotes
|
|
362
|
+
the December–March at fifteen and a quarter. They say it is at forty-six
|
|
363
|
+
percent of carry, because the percentage travels between commodities and
|
|
364
|
+
across years while the cents do not.
|
|
314
365
|
|
|
315
|
-
|
|
316
|
-
|
|
317
|
-
|
|
318
|
-
and the
|
|
366
|
+
The reading is direct. Near full carry, the market is desperate for someone
|
|
367
|
+
to store grain — supply has arrived faster than demand can absorb it, and
|
|
368
|
+
the curve is bidding for bin space. Below about half, storage is a losing
|
|
369
|
+
proposition and the market is asking for the grain now. Forty-six percent
|
|
370
|
+
describes an unexceptional market: enough wheat, no emergency, no glut.
|
|
319
371
|
|
|
320
|
-
|
|
321
|
-
|
|
322
|
-
much has been bought on call and not yet fixed, broken down by futures
|
|
323
|
-
month. No other soft market publishes its unfixed book.
|
|
372
|
+
The asymmetry that makes a carry trade dangerous backwards
|
|
373
|
+
----------------------------------------------------------
|
|
324
374
|
|
|
325
|
-
|
|
375
|
+
Here is what the percentage hides. The spread has a ceiling and no floor.
|
|
326
376
|
|
|
327
|
-
|
|
328
|
-
|
|
329
|
-
|
|
330
|
-
|
|
331
|
-
fixes board, so it must
|
|
332
|
-
buy futures
|
|
333
|
-
Unfixed on-call A merchant has The grower's revenue Selling
|
|
334
|
-
purchase bought from a rises with the
|
|
335
|
-
grower; the grower board, so fixing is
|
|
336
|
-
fixes a sale
|
|
377
|
+
It cannot travel far past full carry, because if it did the trade would be
|
|
378
|
+
free: buy December, put the wheat in a bin, sell March, deliver, and collect
|
|
379
|
+
the excess over your costs. That arbitrage is available to every commercial
|
|
380
|
+
with storage, so it caps the carry in practice.
|
|
337
381
|
|
|
338
|
-
|
|
339
|
-
|
|
340
|
-
|
|
341
|
-
|
|
382
|
+
Nothing whatsoever caps the other direction. A carry can narrow to zero and
|
|
383
|
+
then invert, and it can keep inverting for as long as somebody needs the
|
|
384
|
+
grain in front of them more than they need it later. There is no counter-
|
|
385
|
+
trade, because you cannot borrow wheat out of the future.
|
|
342
386
|
|
|
343
|
-
|
|
344
|
-
not been placed yet, and unlike a speculator's order it has a deadline
|
|
345
|
-
attached: first notice day.
|
|
387
|
+
So the two sides of the same instrument are not mirror images:
|
|
346
388
|
|
|
347
|
-
|
|
389
|
+
* Bear spread — short the front, long the deferred. Bounded. The most you
|
|
390
|
+
can lose is the distance to full carry.
|
|
348
391
|
|
|
349
|
-
|
|
392
|
+
* Bull spread — long the front, short the deferred. Unbounded. An
|
|
393
|
+
inversion has no theoretical limit.
|
|
350
394
|
|
|
351
|
-
|
|
395
|
+
Desks that blow up on calendar spreads almost always blow up on the second
|
|
396
|
+
one, having sized it as though it behaved like the first.
|
|
352
397
|
|
|
353
|
-
|
|
398
|
+
Paris, leaning the other way
|
|
399
|
+
----------------------------
|
|
354
400
|
|
|
355
|
-
|
|
356
|
-
|
|
401
|
+
Now the same instrument in Europe. Matif December milling wheat settled at
|
|
402
|
+
€246.25/t, March at €244.50. December is €1.75 over March.
|
|
357
403
|
|
|
358
|
-
|
|
404
|
+
There is no percent of carry to compute, because the carry is negative. The
|
|
405
|
+
market is not paying anyone to store wheat. It is charging them. In plain
|
|
406
|
+
terms, Europe wants wheat now rather than in March — which is what you would
|
|
407
|
+
expect of the origin that has to serve the buyers the Black Sea currently
|
|
408
|
+
cannot.
|
|
359
409
|
|
|
360
|
-
|
|
361
|
-
negotiation was about a calendar.
|
|
410
|
+
Two curves, the same grain, the same Friday, leaning in opposite directions.
|
|
362
411
|
|
|
363
|
-
|
|
364
|
-
|
|
412
|
+
[chart] Two wheat curves, opposite shapes — Chicago pays you to wait and
|
|
413
|
+
Paris charges you for it. Rebased to December, the American curve
|
|
414
|
+
rises across the year and the European one falls away. — CBOT
|
|
415
|
+
settlements (USDA AMS) and Euronext milling wheat settlements,
|
|
416
|
+
Friday 4 September 2026 — https://storage.googleapis.com/podcast-
|
|
417
|
+
audio-2647223968/commodity-desk-daily/ep16_chart2.png
|
|
365
418
|
|
|
366
|
-
|
|
367
|
-
|
|
368
|
-
400 × $500 = $200,000. Three cents is $600,000, on cotton already sitting in
|
|
369
|
-
its own warehouse.
|
|
419
|
+
Two crops, one month
|
|
420
|
+
--------------------
|
|
370
421
|
|
|
371
|
-
|
|
372
|
-
|
|
422
|
+
The second axis. December wheat at 734.00 against December corn at 536¾ is a
|
|
423
|
+
spread of 197¼ ¢/bu — wheat is nearly two dollars a bushel over corn.
|
|
373
424
|
|
|
374
|
-
|
|
375
|
-
|
|
376
|
-
|
|
377
|
-
have no view left — only a deadline. A rally that began with a dry Texas
|
|
378
|
-
summer ends with people buying because the calendar told them to, and the
|
|
379
|
-
last stretch of it has nothing to do with cotton fundamentals at all.
|
|
425
|
+
Cents per bushel is the wrong unit for that comparison, because a bushel of
|
|
426
|
+
wheat and a bushel of corn are not the same weight. Corn converts at 39.368
|
|
427
|
+
bu to the tonne, wheat at 36.744. On a tonne:
|
|
380
428
|
|
|
381
|
-
|
|
382
|
-
|
|
429
|
+
$/t
|
|
430
|
+
--------------------------------
|
|
431
|
+
Dec wheat 269.70
|
|
432
|
+
Dec corn 211.31
|
|
433
|
+
Wheat over corn 58.39, or 27.6%
|
|
434
|
+
|
|
435
|
+
That number has a use. Wheat has a second life as animal feed, and when it
|
|
436
|
+
gets cheap enough relative to corn, feeders substitute it into the ration.
|
|
437
|
+
That substitution is the demand that switches on underneath a falling wheat
|
|
438
|
+
price — the closest thing wheat has to a floor.
|
|
439
|
+
|
|
440
|
+
It switches on near parity per tonne, a little above if anything, since
|
|
441
|
+
wheat carries more protein. Twenty-eight percent over corn is not near
|
|
442
|
+
parity. So the spread is saying something specific this morning: wheat is
|
|
443
|
+
still trading as food, and there is no feed bid waiting below it. On a week
|
|
444
|
+
when wheat fell fifty cents, that is worth knowing.
|
|
445
|
+
|
|
446
|
+
Two exchanges, and a currency nobody ordered
|
|
447
|
+
--------------------------------------------
|
|
448
|
+
|
|
449
|
+
The third axis is the hard one, because the two markets are not quoted in
|
|
450
|
+
the same anything. Chicago is cents per bushel. Paris is euros per tonne.
|
|
451
|
+
Getting them into one number takes two steps and introduces a third
|
|
452
|
+
position.
|
|
453
|
+
|
|
454
|
+
Step Value
|
|
455
|
+
-------------------------------
|
|
456
|
+
CBOT Dec wheat 734.00 ¢/bu
|
|
457
|
+
× 36.744 bu/t $269.70 /t
|
|
458
|
+
÷ €1 = $1.1629 €231.92 /t
|
|
459
|
+
Matif Dec €246.25 /t
|
|
460
|
+
Matif over Chicago €14.33 /t
|
|
461
|
+
|
|
462
|
+
Here is how it gets quoted on a desk:
|
|
463
|
+
|
|
464
|
+
| TRADER: Where's Matif–Chicago December?
|
|
465
|
+
|
|
466
|
+
| BROKER: Fourteen and a third. Paris over.
|
|
467
|
+
|
|
468
|
+
| TRADER: It was under eight a fortnight ago.
|
|
469
|
+
|
|
470
|
+
| BROKER: It was. Chicago's done the moving, not us.
|
|
471
|
+
|
|
472
|
+
| TRADER: Show me thirty in Dec. Sell the premium.
|
|
473
|
+
|
|
474
|
+
| BROKER: Thirty, Paris over Chicago, working.
|
|
475
|
+
|
|
476
|
+
Neither of them said whether wheat was going up or down. They quoted one
|
|
477
|
+
number — the difference — and the trader sold it. He has no view on the
|
|
478
|
+
wheat price. He has a view on whether Paris and Chicago move apart or
|
|
479
|
+
together. That is relative value, and it is where physical desks live,
|
|
480
|
+
because a physical desk very rarely has a flat-price opinion worth acting
|
|
481
|
+
on.
|
|
482
|
+
|
|
483
|
+
Why €14.33 is not an arbitrage
|
|
484
|
+
------------------------------
|
|
485
|
+
|
|
486
|
+
The instinct is to treat a gap that size as free money: buy the cheap
|
|
487
|
+
market, sell the dear one, wait for convergence. Run it both directions and
|
|
488
|
+
the instinct dies.
|
|
489
|
+
|
|
490
|
+
Buy Chicago, sell Paris. To collect the €14.33 you would have to deliver
|
|
491
|
+
wheat against the Matif contract. Matif delivers French milling wheat into
|
|
492
|
+
French silos, against a specification — around 11 percent protein, a
|
|
493
|
+
specific weight, a falling number. American soft red winter does not meet
|
|
494
|
+
it, and it is on the wrong side of an ocean.
|
|
495
|
+
|
|
496
|
+
Sell Chicago, buy Paris. Now you need French wheat sitting in a registered
|
|
497
|
+
warehouse in the Toledo delivery territory. Same ocean, opposite direction,
|
|
498
|
+
against a spread worth about $16.67 a tonne. Transatlantic freight alone is
|
|
499
|
+
several times that before anyone has paid for elevation.
|
|
500
|
+
|
|
501
|
+
So no delivery mechanism forces these two prices together, in either
|
|
502
|
+
direction. That is the structural difference between the three spreads in
|
|
503
|
+
this episode:
|
|
504
|
+
|
|
505
|
+
* A calendar spread inside one contract is disciplined by delivery.
|
|
506
|
+
Convergence is enforced.
|
|
507
|
+
|
|
508
|
+
* An inter-commodity spread is disciplined by substitution. Feeders
|
|
509
|
+
enforce it, eventually, with real demand.
|
|
510
|
+
|
|
511
|
+
* An inter-exchange spread is disciplined by nothing but the habits of the
|
|
512
|
+
people trading it. It can widen for six months for no nameable reason,
|
|
513
|
+
and there is no date on which anyone is obliged to make it stop.
|
|
383
514
|
|
|
384
|
-
The
|
|
385
|
-
unfixed purchases — net about 11,471 lots of latent buying. The obvious
|
|
386
|
-
conclusion is to be long cotton. The obvious conclusion gets the contract
|
|
387
|
-
wrong.
|
|
515
|
+
The shape of the premium tells you what it is really pricing.
|
|
388
516
|
|
|
389
|
-
[chart]
|
|
390
|
-
|
|
391
|
-
|
|
392
|
-
—
|
|
517
|
+
[chart] What Paris pays over Chicago — Fourteen euros in December, five by
|
|
518
|
+
May. The premium is dated: it is a price for how long the market
|
|
519
|
+
expects the Black Sea to stay broken, not a gap waiting to be
|
|
520
|
+
arbitraged. — Derived from CBOT and Euronext settlements of 4
|
|
521
|
+
September 2026, at 36.744 bu/t and EUR/USD 1.1629 —
|
|
393
522
|
https://storage.googleapis.com/podcast-audio-2647223968/commodity-
|
|
394
|
-
desk-daily/
|
|
395
|
-
|
|
396
|
-
|
|
397
|
-
|
|
398
|
-
|
|
399
|
-
|
|
400
|
-
|
|
401
|
-
|
|
402
|
-
|
|
403
|
-
|
|
404
|
-
|
|
405
|
-
|
|
406
|
-
|
|
407
|
-
|
|
408
|
-
|
|
409
|
-
|
|
410
|
-
|
|
411
|
-
|
|
412
|
-
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|
413
|
-
|
|
414
|
-
|
|
415
|
-
|
|
416
|
-
|
|
417
|
-
|
|
418
|
-
|
|
419
|
-
|
|
420
|
-
|
|
421
|
-
|
|
422
|
-
|
|
423
|
-
|
|
424
|
-
|
|
425
|
-
|
|
426
|
-
|
|
427
|
-
|
|
428
|
-
|
|
429
|
-
|
|
430
|
-
|
|
431
|
-
is invisible. In rough rice, 319 lots — almost identical money — is
|
|
432
|
-
somebody's week.
|
|
433
|
-
|
|
434
|
-
The practical consequence is that a notional risk limit is the wrong control
|
|
435
|
-
in a thin market. The right measure is days to liquidate: take the position,
|
|
436
|
-
divide by honest daily volume, and ask how many sessions it takes to get out
|
|
437
|
-
without being the market yourself. If the answer is more than two or three,
|
|
438
|
-
the desk does not have a position. It has a commitment.
|
|
439
|
-
|
|
440
|
-
Two different kinds of thin
|
|
441
|
-
---------------------------
|
|
442
|
-
|
|
443
|
-
Rice and juice arrive at thinness from opposite directions, and the
|
|
444
|
-
distinction matters because it tells you what kind of shock to expect.
|
|
445
|
-
|
|
446
|
-
Rice is thin because most of it never moves. It is grown and eaten in the
|
|
447
|
-
same countries; only around a tenth of world production crosses a border at
|
|
448
|
-
all. And that traded tenth is dominated by governments — export duties,
|
|
449
|
-
minimum export prices, licence regimes. One notification out of Delhi resets
|
|
450
|
-
the world price faster than any monsoon.
|
|
451
|
-
|
|
452
|
-
When policy is the supply curve, information does not accumulate. There is
|
|
453
|
-
nothing, and then there is everything. That is why in rice the futures
|
|
454
|
-
matter less than the announcements, and why a position that looked liquid on
|
|
455
|
-
Friday can be untradeable on Monday morning.
|
|
456
|
-
|
|
457
|
-
Juice is thin for the opposite reason. Its supply constraint is not policy
|
|
458
|
-
but biology, and it is one-directional. Citrus greening has been working
|
|
459
|
-
through São Paulo for two decades; around 40 percent of a recent Brazilian
|
|
460
|
-
crop was affected. A tree that has it does not recover. So this is not a
|
|
461
|
-
weather premium that builds ahead of a window and decays on the calendar —
|
|
462
|
-
it is a slow, permanent reduction in the number of producing trees. FCOJ-A
|
|
463
|
-
on ICE is 15,000 lb of orange solids. A market that small does not absorb a
|
|
464
|
-
fund. It gets moved by one.
|
|
465
|
-
|
|
466
|
-
Cotton, then, sits between the two. It is liquid enough to trade properly,
|
|
467
|
-
and it publishes the one thing the thin markets never tell you: exactly how
|
|
468
|
-
much forced buying is still to come, and in which month.
|
|
523
|
+
desk-daily/ep16_chart3.png
|
|
524
|
+
|
|
525
|
+
Three ways a spread is bigger than the outright it replaced
|
|
526
|
+
-----------------------------------------------------------
|
|
527
|
+
|
|
528
|
+
A spread sounds safer. Two legs, they offset, the market risk is out. On a
|
|
529
|
+
desk it is how people lose more money than they ever lost on outrights, for
|
|
530
|
+
three reasons that compound.
|
|
531
|
+
|
|
532
|
+
One: the currency arrives free. Long Chicago and short Paris on 30,000 t is
|
|
533
|
+
not two positions, it is three. The Chicago leg is worth about $8.1 million,
|
|
534
|
+
denominated in dollars, and the book is in euros. Nobody sized that exposure
|
|
535
|
+
or approved it. It came attached to the spread, and it does not show up on a
|
|
536
|
+
wheat risk report. In the worked example above it took €166,800 of a
|
|
537
|
+
€457,800 wheat profit.
|
|
538
|
+
|
|
539
|
+
Two: the exchange helps you make it bigger. A recognised spread earns a
|
|
540
|
+
margin credit, frequently 70 to 80 percent off the outright requirement. The
|
|
541
|
+
same margin that carried a hundred lots outright carries four hundred lots
|
|
542
|
+
of spread. Risk per tonne fell; tonnes rose by more. That is not risk
|
|
543
|
+
reduction, it is leverage wearing a hedge's clothes — and it is granted
|
|
544
|
+
automatically, by a clearing system, to a desk that believes it has just
|
|
545
|
+
become more conservative.
|
|
546
|
+
|
|
547
|
+
Three: the correlation is an assumption, not a contract. Chicago and Paris
|
|
548
|
+
moved together through August because one story was driving both. Then
|
|
549
|
+
Moscow zeroed its export duty — and Russian wheat competes with French wheat
|
|
550
|
+
for North African business far more directly than it competes with American
|
|
551
|
+
wheat. The story that made the two markets move together is precisely the
|
|
552
|
+
story whose resolution pulls them apart.
|
|
553
|
+
|
|
554
|
+
That is the general form, and it is worth stating plainly: a spread is
|
|
555
|
+
correlated right up until the moment it matters. The event that resolves the
|
|
556
|
+
thesis is usually the same event that breaks the relationship the position
|
|
557
|
+
depended on. Which is why the honest way to size a spread is not "these two
|
|
558
|
+
legs offset" but "what do I lose if they stop offsetting on the day I find
|
|
559
|
+
out I was right?"
|
|
469
560
|
|
|
470
561
|
|
|
471
562
|
----------------------------------------------------------------------------
|
|
@@ -473,7 +564,7 @@ Soft Commodity Trading — a daily briefing on physical commodity trading.
|
|
|
473
564
|
|
|
474
565
|
GLOSSARY
|
|
475
566
|
Every unit and expression the show has introduced lives on the episode page:
|
|
476
|
-
https://storage.googleapis.com/podcast-audio-2647223968/commodity-desk-daily/
|
|
567
|
+
https://storage.googleapis.com/podcast-audio-2647223968/commodity-desk-daily/ep16.html#glossary
|
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568
|
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569
|
All episodes: https://storage.googleapis.com/podcast-audio-2647223968/index.html
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RSS: https://storage.googleapis.com/podcast-audio-2647223968/commodity-desk-daily/feed.xml
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