In this week’s Bower Trading Market Strategy Report, Jim Bower talks about spreads. He tells HAT marketers should always keep an eye on spreads within a specific commodity and in relation to other commodities.
“We know that the wheat spreads have gotten extraordinarily wide now with the front month almost a dollar a bushel cheaper than the deferred month,” Bower said. “In my 40 years of trading I’ve only seen that maybe one time. From a producer’s standpoint, watch the spreads because they’re the language of the market. You want to market where the front months lead compared to the back to get that movement started from a demand standpoint and an export standpoint. Right now if they’re moving grain off the farm and have bills to pay we’re selling defense strategies using the board as a defense mechanism for sales that they’ve already done.”
Bower says keep a close eye on the stock market too. There has been a lot of capital flow into stocks lately.
“And in a certain sense I think rightfully so. I think the economy not only here in the United States but globally is doing pretty well. The demand for employment seems to be increasing and things seem to be going relatively well there, but I think it’s important that this market, particularly since it’s so overbought, sees light out ahead that the tax situation is going to be in favor of the layman. So, we’re watching the stock market in comparative value to commodities because that spread is getting awfully wide. In other words, you’re getting stock valuations extremely high compared to historical price relationship to commodities. So, some day down the road there’s going to be some great, great opportunities in commodities, but you’ve got to be very patient and you’ve got have risk management.”
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