Euronext Dec-March milling wheat spread balloons on short squeeze

The price differential between December 2022 and March 2023 milling wheat futures ballooned Tuesday in trade on the Euronext exchange, as tight supplies combined with short-covering for December positions ahead of the contract's expiry, market sources have told Agricensus.

The December 2022 futures contract was trading at around €334.25/mt as of 1800 CET, up €3.50/mt on the day, while March was lower at €321/mt, down €0.75/mt on Monday’s settlement.

At the close of trade Monday, the spread between the two was just €9/mt, and on Friday it was just €4.75/mt, exchange data showed.

“There is a short squeeze on the December contract. There is no longer [physical] availability in the French cash market, so people that are short cash are buying [Euronext futures] to get delivery,” one market player told Agricensus.

“People who were short futures are getting stopped out. So it’s a big squeeze and this thing can go higher,” he said.

Market watchers pointed to strong exports out of France so far this season, which could mean as much as 75% of surplus wheat for export may be sold before the end of the year.

In particular, strong buying has been seen from China recently, with as many as 8 French wheat cargoes thought to be headed in that direction.

“Some companies have over sold December cash to China and they now feel the heat and decide to take delivery,” another market player said.

Furthermore, many market participants have been observed to be turning to quoting physical market prices for December loading over March contracts, rather than over the December contract as would be usual practice, as availibilty becomes scarce and futures more volatile.

"The squeeze on December contracts is due to no farmer selling and the business to China," a trader stated.