Highlights
The NOPA Crush Report for April released late yesterday morning was 169.79 million bushels. The market expected 172.37 million bushels of soybeans. Oil stocks at the end of April were 1.814 billion, well below the market’s expectation of 1.886 billion pounds, which is good sense the bushel quantity crushed was less than expected.
The April crush was about 9 million bushels less than the March crush. None-the-less, the April 2022 crush was 5.9% higher than April a year ago and the second-largest April crush on record for NOPA members, behind only 2020. The soyoil inventory is the smallest since September when we ran out of soybeans to crush.
China’s spot month soybean futures contract was up 51 USA cents Monday.
The Wheat Quality Council HRW tour commences today, leaving from Manhattan, Kansas.
Informa Economics estimates the 2022 HRWW crop to be 590 million bushels, down from 749 last year. Informa sees bean acres at 89 million vs. USDA March Intentions at 90.9 and 87.2 last year. They see double crop bean acres at 4.5 million compared to 3.7 last year.
China’s industrial factory production has been tracked for 32 years. April was only the second month in 32 years that the industrial production contracted. You may recall the Purchasing Manager Index (PMI) was sharply lower for April and May. Certainly the COVID lock-down was the culprit. Given China is the world’s number one crude oil importer, why was crude oil so strong yesterday? On the other hand, China’s daily coal production was 12.09 million mt in April, up 11% from a year ago. The all-time record of 12.77 million mts per day of coal production was achieved in March. Their coal inventory on May first was 25% more than a year ago, yet China’s government economists say the economy is going to continue to contract for another two to three months at least. Are they trying to buy crude oil and soybeans cheaper?
Without a doubt, soybeans have the most upside price gains potential in the coming months technically and fundamentally.
The United Nations Secretary General proposed to ease restrictions on the export of potash fertilizers from Russia and Belarus in exchange for the passage of vessels with grain from Ukraine to save the world’s children from starvation.
Mexico will suspend import duties on food staples including corn oil, rice, corn flour, wheat flour, white corn, wheat to combat inflation. With the revised-by-Trump NAFTA agreement, none of those commodities from the USA are (supposedly) charged a tariff, so not really going to help demand for US products.
Russia’s Ministry of Agriculture reported that as of May 12, 12.6 million hectares (31.13 million acres) have been planted to spring crops, which is 1.1 million more than a year ago. Wheat 3.8 million ha is up 100,000 from a year ago; corn 1.6 million ha, also up 100,000 ha; barley at 4.4 million ha, is down 100,000 ha from last year. Other crops include sunflower, rye, oats, flax, millet, etc.
Yesterday's ENSO Update
Export Inspections Update
Wheat Put Discussion
After the Close Monday May 16th.
September 2022 CBOT wheat futures settled at $12.51, up 70 cents, which is the maximum price change for one day. All puts decreased in value since the futures price gained a whole bunch.
The $10 put lost 9¼ cents while the $9.00 put lost 3¼ cents.
A short futures short position lost $3,500.
The $10 put lost $422.50.
The $9 put lost $162.50.
The wheat in the field or bin gained about $3,500 because cash price = futures plus basis.
This put tracking began 14 April and we have tracked it every business day since to show the relationship between puts and futures to see the pros and cons of a hedge (or HTA) and buying puts.
Last Thursday, the recommendation was to add to the put positions by placing open orders to buy another put for the same premium (cost) per bushel, but a strike price $1 higher than the options bought on April 14th.
If a wheat producer had bought a $9 put for 26 cents, we want to place an order to buy a $10 put for 26 cents.
If a wheat producer had bought a $10 put for 59 cents, we want to place an order to buy an $11 put for 59 cents.
The $10 put for 26 cents would have been Friday and the order to buy an $11 put for 59 cents would have been filled (completed, executed) yesterday (Monday may 16th).
Summary: both farmers sold wheat on an HTA and then bought on April 14th:
One bought a September $9.00 put for 26 cents
The other bought the $10.00 put for 59 cents.
As of the close yesterday, one farmer has a $9 and $10 put and paid 26 cents for each of them.
The other farmer has a $109 and $11 put and paid 59 cents for each of them.
Since April 14th:
September wheat futures has moved from $11.01 to $12.51, a loss of $7,500.
The September $9 put has moved from 26 cents to 7 cents, of $950.
The September $10 put has moved from 59 cents to 17 7/8 cents. a loss of $2,056.25.
The cash wheat in the bin or the field has gained $7,500 if the basis was unchanged.
If a person had hedged the wheat in his own trading account, the cash needed to maintain the hedge would have been $7,500 and the cost of the two puts, either $2,900 for a $9 and $10 put or $5,900 for the $10 and $11 put.
Let’s call the farmer who bought the $9 and $10 puts Joe and the farmer who bought the $10 and $11 put is Dan.
If Joe and Dan hedged the wheat in their own account and bought the puts as described:
Joe has $10,400 tied up in his options and futures account.
Dan has $13,400 tied up in his futures account.
Now, we are going to add Don who did not sell the futures, but he bought a $9 put for 26 cents and then a $10 put for 26 cents. Don has invested $2,600.
We will also add Junior, who did not sell futures, but bought the $10 put for 59 cents and then bought the $11 put for 59 cents. Jr. has $5,900 invested.
You can see why finding a merchandiser who will do the HTA and buy puts for you has some advantages!
Market Data
This morning:
Crude oil is at $113.96, down $0.24
The dollar index is at 103.94, down 0.25
July palm oil is at 6,267 MYR, down 102. 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 $133.02, up $0.06 per cwt. The contract high was made today at $133.79 per cwt. Cotton competes with soybeans and corn for acres.
July natural gas is at $8.153, up 0.100. The contract high was made May, 6th at $9.052. Natural gas is the primary cost to manufacture nitrogen fertilizer.
July ULSD is at $3.7729 per gallon, down 0.0009. 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 3 less rain days in the 10 day forecast than yesterday and the Eastern Corn Belt has 8 more 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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