Ag Calendar Spreads Liquidity Observation

Discussion in 'Commodity Futures' started by FroggerMan, Sep 18, 2012.

  1. I've noticed that with calendar spreads such as Rice, Wheat, and other Ag products there is a lot more liquidity (more bids) on the long side of the spread. I believe the reason that is the case is because when you are long the spread you can take delivery on it and then close out the position when the short leg expires. As long as you price it right so the cost of storage is priced in correctly you will make out ok.

    My question is how are firms able to do this in size when position limits in Ags are so low. Are they excluded from the position limits because it is a hedge position? Also, most firms that participate in this type of trading would most likely need to have a relationship with a bank to provide the necessary capital to cover the required margin.

    If anyone has any knowledge on this matter I would be interested to hear what you have to say. I have no interest at this time to participate in this type of trading but am always trying to expand my knowledge of the markets.