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Brazilian Grain, Export Inspections, Put Options, Markets & Rain Days Update 04/19/2022

Highlights


Now that the holiday is behind us, Reuters released more details about Friday’s NOPA report. March crush was 181.759 million bushels, a record for a March. Oil stocks were at 1.908 billion pounds, down 7.3% from February’s 22 month high. That is a lot of oil disappearance given a record high crush. MD Commodities is a world agricultural commodities & macroeconomics analysis firm. They announced Monday morning they estimate for Safrinha (Brazil’s second crop corn) has declined 8% to 10% from their previous estimate and 1st and 2nd crop production combined will drop about 5% to the 108-110 million mt range. However, note the record corn production for Brazil was 103 million mts in 2020 and 2019. Last year’s total corn production was 87 million mt as the Safrinha crop was planted 4 to 6 weeks later than normal and the latest corn died shortly after the dry season began. For those of you who pay attention to our Rain Days chart, you already knew Brazil's Safrinha crop has been hurting for several weeks as much less rain has been in the 10 day forecast the past seven days. Take a look at yesterday’s numbers we reported for these three locations in Safrinha country:

This reduced corn production propelled corn futures solidly above $8.00 for first time since 2012. The Crop Progress Report yesterday afternoon showed a 2% decline in the condition of the nation’s winter wheat crop; the market expected a 1% improvement. This year’s crop is rated 30% good to excellent compared to 53% a year ago. The corn crop is 4% planted, the market expected 5%; 6% is the average pace. Soybeans: 1% actual, 2% expected, 2% average pace Spring wheat: 8%, 9% expected, 9% normal pace Cotton: 10% planted, 9% average pace Sorghum: 17% planted, 12% average pace A farmer in Itaberaí, Goias, Brazil says his Safrinha crop is gone, too dry and the same across a large area. Goias grows about 3.4 million mt each of corn and beans. A farmer in south central Nebraska tried to set his bean planter yesterday, but the soil was so dry and hard, it would not go into the ground.

 

HPAI (avian flu) first commercial flock in Pennsylvania: 1.4 million laying hens gone. A lot of corn and bean meal demand also gone. April 18 (Reuters) - At least 24 vessels carrying almost 678,000 mts of Russian fertilizer are expected to reach Brazil in the next few weeks, according to Agrinvest Commodities. Shutting off fertilizer imports to Brazil would absolutely cause a worldwide food shortage like we have never seen since the Middle Ages. It is simple: no fertilizer, no crops to harvest in Brazil. There are so few nutrients in that sandy soil. So, once again, money is more important than sanctions. The EU continues to buy natural gas and crude oil from Russia while sending weapons, supplies and money to Ukraine. The only people who want this war to end are the people in danger of losing their lives, homes and jobs. Everyone else in the world is making more money than usual.


 

Export Inspections Update

Also below is the weekly Inspections for Export released late yesterday morning.


 

Put Options Lesson, part 3


September wheat settled at $11.23¼ yesterday, up 22¼ cents. If you do not instantly know that a higher close in the futures contract means put values declined, you need to read the first two put lessons from the last two morning emails.


The September CBOT $10 put premium settled at an even 50 cents, down 8 and seven-eighths cents Monday. If you had bought a September $10 put last week, your put is now worth nearly 9 cents less after Monday’s markets closed, which would be a loss of $443.75 on one option, which is 5,000 bushels.


However, if you had sold September wheat futures, your loss on Monday would have been 22¼ cents, which would be $1,125.50 per 5,000 bushel contract.


Which is worse? Losing $443.75 on a put or losing $1,125.50 with a futures contract?

Be advised you can liquidate either of these positions any time the CBOT is trading.


How would you liquidate a sold (short) September wheat futures contract position?


Buy a September CBOT wheat futures contract to offset the sale.

How would you liquidate the September $10.00 put position? Sell a September $10.00 put.


Why would you have to buy a futures contract to liquidate a futures position, but you have to sell an option to liquidate the wheat put position?


The short (sold) futures position was a promise to deliver wheat in September and be paid $11.01 for it. To liquidate, you must buy the same contract. The CBOT says your obligation to buy wheat in September offsets (cancels out) your obligation to sell wheat September and the transaction is closed.


However, buying a put is like buying tangible object for investment purposes; the expectation is to buy it at a lower price than you sell it.


So, late last week, we assumed for this example we bought a September $10 put for nearly 59 cents. That put gave the buyer the right to sell September wheat futures at $10.00. On Monday, September wheat futures gained 22¼ cents. Since the futures were higher, the probability of September wheat being below $10 on the option’s expiration day is diminished. Therefore, the value of having the right to sell September wheat at $10 is also diminished.


Did the $9.00 put lose more or less value than the $10 put? If you can answer that question correctly and know why that answer is correct, then you understand the concept of using puts.


Below is the screenshot of the same options with updated premium values as of the close Monday.


 

Market Data


This morning: Crude oil is at $107.76, down $0.45 The dollar index is at 100.87, up 0.09 July palm oil is at 6,463 MYR, up 143. The contract high was made March, 9th at 6,531 MYR. Palm oil owns 36% and soybean oil owns 28% world market share. December cotton is at $122.80, down $0.67 per cwt. The contract high was made April, 14th at $124.36 per cwt. Cotton competes with soybeans and corn for acres. July natural gas is at $7.996, down 0.046. The contract high was made yesterday at $8.279. Natural gas is the primary cost to manufacture nitrogen fertilizer. July ULSD is at $3.4993 per gallon, down 0.0010. The contract high was made March, 9th at $3.7675. ULSD stands for Ultra Low Sulfur Diesel.


 

Rain Days Update


The Western Corn Belt has 1 less rain days in the 10 day forecast than yesterday and the Eastern Corn Belt has 6 less rain days than yesterday.


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