Crop Progress, Put Options, Markets & Rain Days Update 04/27/2022
Highlights
Yesterday morning, the USDA announced the sale of:
132,000 mts of new crop soybeans to China
78,000 mts of old crop soybeans to unknown
55,000 mt of new crop soybeans to unknown
Rumors in some circles are that China is done buying corn. We highly doubt it.
StatsCanada reported yesterday morning:
Wheat planted acres will be 25.031 million acres, up 1.67 million over last year and above the top end of the range of trade estimates; largest wheat acreage in 9 years.
Durum and other spring wheat were 1.2 million acres higher than last year.
Canada’s canola acreage will be lower by 1.6 million acres; bullish soybeans.
Monday’s Crop Progress:
Corn planting 7% complete vs 9% estimate and 15% average, slowest since 2013. The crop is 2% emerged vs 3% average.
Milo is 19% planted vs 18% last year and 21% average.
Spring wheat is 13% planted vs 15% average and 2% emerged vs 4% average.
Winter wheat condition was down 3% to 27% in good-to-excellent category vs 49% last year,
Kansas the biggest change, down 7% to 26% g/e.
The winter wheat crop is 11% headed vs 19% average.
The US Agriculture attaché in Argentina cut corn production to 51.5 million mt. The USDA is at 53 million. It is hot down there, but the corn crop is mostly mature.
On May first, the daily trading limit will be:
Corn 50 cents, up from 35.
Soybeans $1.15, up from 90 cents
Soymeal $30, up from $25
Soyoil 5 cents per pound, up from 4 cents
Wheat 70 cents, down from 85 cents
Those changes indicate the brain trust at the CME and CFTC think corn and beans are going to become more volatile while wheat will become more calm.
Chinese anger is brewing at the government’s covid lockdown and growing supply chain problems. Their economy is expected to contract 8.5% in the second quarter; that is a heart attack for an economy that has been growing 6 to 8% for 25 years.
Put Option Discussion Continues
Yesterday’s put option discussion ended with the question, “Was the $11 put out-of-the-money or in-the-money on the close Monday?”
The settlement price for September futures on Monday was $10.71¼.
To determine if the $11 put was in-the-money or out-of-the-money, you ask yourself:
If that put option is exercised (exchanged for futures position), would it have a profit or a loss?
A put with a strike price of $11.00, if exercised, would be a short (sold) position at the strike price of $11.00.
If the futures price was $10.71¼, would a short (sold) position at $11.00 have a profit?
Yes! Sold at $11.00 and the market is at $10.71¼ = 28¾ cents profit.
What was paid for the option or what the option is presently worth have nothing to do with the determination if the option is in-the-money or out-of-the-money.
The in-the-money value of an option is also called intrinsic value. Since the $11.00 put option was 28¾ cents in-the-money, the option has to be worth at least 28¾ cents, even if it was the expiration day. But the September option does not expire until August 26th, so it must have time value also. What is the time value of the $11.00 put option’s premium on the close Monday?
The premium on the close Monday for the September $11.00 put was an even 90 cents. The time value of an in-the-money option is calculated by:
Premium minus intrinsic value = time value. So, for $11.00 September wheat put on Monday: 90 cents minus 28¾ cents = 61¼ cents of time value.
The time value of an option’s premium is determined by, believe it or not, how much time remains in the life of that option. It is also a function of the volatility of the futures contract. It is easy to understand that if the futures contract is moving 15 to 35 cents up and down most days, it will be more difficult to assess its price projection. That difficulty of projecting the price projection means the option will cost more, regardless of whether it has any intrinsic value or not.
When the futures are quiet and moving in a relatively consistent trend, the volatility factor is diminished and that reduces the time value of an option.
Yesterday, September wheat was up 21¼ cents. The put options values should have decreased and they did. The $10 put went from 53 1/8 cents on Monday to 46 7/8 cents on Tuesday, down 6¼ cents. The delta indicates the premium should have declined 7¼ cents. Nothing is 100% in this business.
A trader with a short September futures contract lost $1,062.50; a trader with the $10 put lost $362.50. When the market futures moves against you, one loves to own options. When the futures market moves with you, one hates options. Note the premiums as of the close Tuesday afternoon:
Market Data
This morning:
Crude oil is at $102.63, up $0.93
The dollar index is at 102.56, up 0.26
July palm oil is at 6,549 MYR, up 149. The contract high was made April, 25th at 6,799 MYR. Palm oil owns 36% and soybean oil owns 28% world market share.
December cotton is at $118.77, up $0.06 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 $7.166, up 0.098. The contract high was made April, 18th at $8.279. Natural gas is the primary cost to manufacture nitrogen fertilizer.
July ULSD is at $3.5587 per gallon, up 0.0023. 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 4 more rain days in the 10 day forecast than yesterday and the Eastern Corn Belt has 7 more rain daysthan yesterday.
