Major Export Deal Announcements

Market Action Related to Reporting of Major Export Deals


Roger, So how does a corn export announcement work?


Did they buy the futures contracts? Or did they "announce" and tell someone to do the buying of the futures?


Or are asking someone to get ready to fill a boat, then they buy the contracts when the boat is being filled?


It is late March. Let's say you are the top corn export manager at Cargill. China comes to you to buy 200,000 mt of corn for June delivery, which means the ships must be loaded in May. which means the ships must be chartered ASAP to be at the loading ports when needed. The deal is signed so you can start spending money to get the corn loaded.


Your inventory report shows you have 100,000 mt in-house. But the other 100,000 mt you will have to source... that means buy a lot of corn from other grain dealers or farmers.


The Chinese buyers want the price locked-in the day the deal is signed. The 100,000 mt in-house is hedged (short futures position) to protect Cargill from losing money if the price of corn goes down. As soon as the deal is signed with a set price, the risk of price change is the buyers baby. Since the cash price is fixed and you lift Cargill's hedge on 100,000 mt in house by buying enough futures contract to cover 100,000 mts of hedges Cargill had previously sold when Cargill bought the corn.


What about the 100,000 mt of corn you have to buy in the coming weeks to load the full 200,000 mt in early May? The buyer wants the price locked-in, but you don't have the corn in house and you can't buy 100,000 mt today and immediately price it to the Chinese. What do you do to protect Cargill from the price of corn going up?


Cargill buys 100,000 mt of corn in the futures market to hedge the cost of the cash corn Cargill has to buy in the coming weeks for the May shipment.


So, Cargill is doing a lot (7.874 million bushels) of corn futures buying in a pretty short period of time. Do you think anybody will notice? Do you think a Cargill employee might tell his wife and friends there is big corn deal to be announced in a day or two? Do you think country elevators are asked by Cargill how much corn they have for sale at what price? Do you think some railroads, river barges and ocean freight people are contacted immediately? One does not buy 200,000 mt of corn futures without a lot of market people taking notice.


Who wants to be selling corn when Cargill is buying? Not me. If I am short, I will buy corn to cover my short (sold) position. If I am out of the market, it might be a good idea to buy corn futures when Cargill starts to buy. What do you think?


Note, that as Cargill buys the physical corn to cover the 100,000 mt not already in house, they will sell corn futures to offset the buy hedge they initiated the day they locked-in the corn selling price. The long hedge is offset because the Chinese purchase price is fixed with the export deal, thus Cargill has no market risk which needs to be hedged.


US food and fiber exporters are required to report all “large” daily sales of certain commodities by 3:00 p.m. Eastern time on the business day after a sale is made.


Large sales for all grain and oilseed commodities are defined as 100,000 metric tons or more of one commodity in one day to a single destination, or cumulative sales of 200,000 tons or more of one commodity during the weekly reporting period to a single destination. Large sales for soybean oil are 20,000 tons daily or 40,000 tons or more in one weekly reporting period.


About 370 exporters report on a weekly basis via online, fax and e-mail, with approximately 1,300 data entries each week.


All daily sales reported required to be reported to the USDA by 3:00 p.m. are summarized and released to the public at 9:00 AM the next business day. This one of the reasons experienced traders say, Buy the rumor and sell the fact.


The weekly summary of export activity of US export sales is released to the public every Thursday at 8:30 AM. The report is available electronically on the FAS Web site at:


www.fas.usda.gov/export-sales/esrd1.asp

One can sign-up for an email from USDA to be sent with every 100,000 mt or larger export deal and dozens of other similar reports. Go to USDA, Foreign Agricultural Service at:

https://public.govdelivery.com/accounts/usdafas/subscriber/new

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