A trading idea

As of today, wheat futures are 689 USD and corn is 607.60. That is a good 81 USD difference and offers a nice statistical arbitrage opportunity if we pay attention to their colinearity. We can short a wheat future and long a corn future with the same expiry since I would expect these prices to converge. Remember that these crops are interchangeable in the products they are used for in many industries, such as biofuels. What's high price will lead to a switch to corn.

Opening a position in stages if the gap opens and again closing it in stages gives even more profit. The risk is limited, given the colinearity model. Obviously the model can break down, at least temporarily, but the risk is far less than a directional position. If the gap narrows down, we close the position at, say 30 USD difference, still higher than the the past year's average gap. We can collect 50 USD times the leverage the future offers with relatively low risk.

Furthermore, I would risk a little and bet for a deflationary collapse in commodities given the current environment, loading a little bit more on the short side. Other people are warning about this too.