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Economy & Consumers, Canola, Broilers & Ethanol, Put Options, Markets & Rain Days Update 5/19/22

Highlights


Yesterday, Target, Lowes, Macy's, and Walmart all issued their quarterly financial reports and both were major, major disappointments for the trade. Target’s stock lost 27%! Consumers are not spending nearly as much money as the market expected.


The US government warned yesterday that one-third of the nation is under significant threat of infection by the latest variants of the coronavirus. This is a set-up for something, multiple possibilities.


Last week there were estimates that the US economy contracted in the first quarter of 2022. Given today’s retail news, the Federal Reserve is faced with controlling inflation by tightening the money supply which will put the country into a recession, which has probably already happened, we just don’t have the facts to confirm it yet.


As grain producers, high inflation, which we most definitely have, is bullish as all get out, but a recession is bearish as all get out as demand evaporates. We must watch these markets closely be ready to pull the trigger, not only on grain marketing, but on all financial matters.


China has opened the door for the importation of Canadian canola. That door has been closed since March 2019 in the aftermath of Canada's arrest of Meng Wanzhou, the Chief Financial Officer for Huawei Technologies for doing business with Iran. The US government had asked Canadian authorities to arrest her. China showed their dismay by refusing to buy Canada’s canola for three years. The US Justice Department agreed in September 2021 to drop their extradition demand and allow Ms. Meng to leave Canada, after she admitted to wrongdoing in exchange for prosecutors dropping wire and bank fraud charges.


Canola is an oil seed. For you soybean producers, the good news is Canada had a terrible canola crop last year and will not have any canola to export until this year’s harvest.


The USDA announced yesterday morning export sales of:

  • 10,200 mt old of old crop soybeans to unknown

  • 219,00 mt of new crop soybeans to unknown


The soybean basis at the Gulf was up 4 cents for May and 5 cents for June yesterday.


Sovecon (Andrey Sizov) increased his wheat production estimate to an all-time record large 88.6 million mt, up by 1.2 million from his previous estimate. Last year’s production was 76 million mt. If you have been watching the rain days for the four Russia locations we report every day, this huge wheat crop is no surprise. USDA’s Russian wheat production estimate last week was just 80 million mt. Bearish with a capital “B”, but the world gets a steady stream every day that we are going to see 40 to 50 million children die this year due to a lack of bread.


Agroconsult of Brazil lowered their safrinha corn production estimate 4.6 million mt to 87.6.


The U.S. government is moving to promote dialog with Venezuela, which may lead to the removal of sanctions that allows Venezuelan crude exports to resume.


 

Wheat Put Discussion

After the Close Wednesday May 18th.

September 2022 CBOT wheat futures settled at $12.33, down 45¾ cents. All puts should have increased in value since the futures price was down up significantly.


  • The $9 put gained 1½ cents, +$75.

  • The $10 put gained 4¼ cents, +$212.50.

  • The $11 put gained 4 7/8 cents, +$243.75.

A short futures position gained $2,287.50.

The wheat in the field or bin lost about $2,287.50 because cash price = futures plus basis.

The closer an out-of-the-money option’s strike price is to the futures price, the larger the delta.

The delta is the percent change in the price of an option for a given change in the price of the underlying futures contract price.


 

Broilers & Ethanol Update


Last week:

Broiler egg set was up 1% than the same week a year ago.

Broiler egg hatch was up slightly than the same week a year ago.

Average daily ethanol production:

991,000 barrels last week.

991,000 barrels the previous week.

1,032,000 barrels the same week a year ago.

663,000 barrels the same week two years ago.

Ethanol inventory was 23.791 million barrels compared to 24.140 million barrels the previous week.


 

Market Data


This morning: Crude oil is at $110.42, up $0.83 The dollar index is at 103.79, down 0.02 July palm oil is at 6,296 MYR, down 68. The contract high was made April, 29th at 7,229 MYR. Palm oil owns 36% and soybean oil owns 28% world market share. December cotton is at $129.03, down $0.15 per cwt. The contract high was made May, 17th at $133.79 per cwt. Cotton competes with soybeans and corn for acres. July natural gas is at $8.300, down 0.155. The contract high was made May, 6th at $9.052. Natural gas is the primary cost to manufacture nitrogen fertilizer. July ULSD is at $3.6021 per gallon, up 0.0328. The contract high was made May, 5th at $3.9282. ULSD stands for Ultra Low Sulfur Diesel.


 

Rain Days Update


The Western Corn Belt has 1 more rain days in the 10 day forecast than yesterday and the Eastern Corn Belt has 4 less rain daysthan yesterday.


The 6 to 10 day forecast updated every day at: https://www.cpc.ncep.noaa.gov/products/predictions/610day/

Explanation of Rain Days


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