The higher-protein wheat contract originally from the Kansas City Board of Trade, now listed on CME, traded against Chicago soft red winter wheat as a protein spread.
Hard red winter is the bread wheat of the US plains, with higher protein than the soft red winter deliverable against the Chicago contract. Millers pay up for protein, so KE normally trades at a premium to wheat-futures.
The KE-ZW spread is the market's protein and quality gauge. It widens in plains droughts that cut hard wheat yields and narrows when soft wheat areas are hit instead. Minneapolis hard red spring wheat (MW) is a third class with higher protein still.
Example: KE at 600'0 against ZW at 580'0 is a 20-cent premium, $1,000 per 5,000-bushel spread. In the 2022 plains drought the spread exceeded 150 cents, or $7,500 per spread.
Original diagrams for the ideas on this page. Illustrative, not real market data.
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.
Educational only, not advice. Spotted an error? Post in Site Feedback.