An extraordinary thing is going on in the Minneapolis Spring Wheat contract. specifically the March 08 expiration. The chart above shows the daily high low and close but doesn't reveal the full extent of the price move. The market has traded limit up for several days now and the only real price indications are from the synthetically implied price of the options. Friday the option implied price was $21.00 a bushel. $3.00 a bushel higher than the limit price close in the future. The exchange has started procedures to expand the trading limits and even to remove them entirely to allow the price to find a meeting point for buyers and sellers.
The low level of supplies is making it close to impossible to find wheat to deliver and so the shorts are stuck and having to pay up to buy back their contracts. This will not end well. Reportedly the Canadian Wheat Board (a government like agency) is one of the shorts, perfectly illustrating the problems of allowing bureaucratic comittees to make trading decisions.
The effects are spilling over into other wheat contracts too. When the limits are removed the price will surge to some clearing level that relieves the shorts and then will crash back several dollars. I suggest if you want to trade wheat right now do it with long option so you have a defined risk. Stop losses won't do you any good if markets open limit through your price.
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