Yesterday’s reversal from weak to firmer grain futures prices were (apparently) due to the strong bounce of crude oil. A crude oil refinery in Saudi Arabia was bombed, and was the likely reason crude oil turned higher and pulled the grains along with it.
If a refinery is knocked out of action, that is bullish refined products and bearish crude oil. It is like when a packer shuts down, live cattle get cheap and beef gets expensive. Therefore, it is reasonable to expect a softer opening Sunday night, everything else being more or less equal.
The war reports are pretty much the same. The Russians and Ukrainians are still in "negotiations" but no progress is being made as both sides are demanding the other side stop shooting before serious negotiations will begin.
Odessa is located in the extreme southeast area of Ukraine and is, by far, the primary grain export port of Ukraine and probably the entire Black Sea. There has been some ship to ship gunfire near the port off and on the past four weeks, but the port itself has not been fired upon. Both sides want to preserve the port’s ability to load ships after the war to sell about 14 million mt of corn and the same tonnage of wheat.
If the port is even moderately damaged, it probably will take the rest of 2022 to repair the damage before the grain can be loaded.
If the Ukrainians think they will lose control of the grain inventory, they will destroy it before they let the Russians have it.
If the grain is destroyed, the market’s emotional response will be explosive as that news will attract new investors into the grain futures. However, we are quite sure the market has pretty much already priced those tons out of the world’s supply for 2022. Therefore, during the two or three days after that grain is set on fire, will most likely be the time to price 2021, 2022 and maybe 2023 production and buy puts on the bushels already sold, whichever crop year those bushels were or will be grown.
The scary and probable result of the fire will be grain merchandisers (and their bankers) will be fearful they will run out of margin money and very likely will not buy any bushels until the market calms down enough they know they will be able to handle the cash flow of margin calls.
Therefore, give some thought of how to possibly fund the purchase of put options in your own account. Do not wait until the grain is set on fire to try to open an option trading account.
The day the war started, soybeans made a new contract high by 90 cents and settled $1.04 off the high that very day and have not been close to that high since. Wheat rallied $3.50 in a week and then lost $2.54 in the two days. The May wheat high since then has been $1.40 below the high.
We had many clients who tried to sell corn, wheat and beans those few days as well as many farmers across the country were told there was not going to be any grain buying until “further notice”. That is the fourth time since 1988 that many merchandisers refused to buy grain for a period of several days.
You will always be able to buy put options in your own account, but you have to have the options trading account open, which costs nothing, but takes several days and then you have to have money in the account to pay for the options before you buy them.
Once you pay for the options, there will never be a requirement to send more money. Put options increase in value when the futures market goes down.
Yesterday morning, USDA announced the sale of 132,000 mts of old crop soybeans to China.
The Buenos Aires Grain Exchange (BAGE) raised Argentina’s corn rating from 29% to 31% good to excellent.
May soybeans on China’s Dalian Futures Exchange are the equivalent of $22.73 per bushel on Friday’s close of business.
Yesterday’s Cattle on Feed Report
On Feed: 101.1% 101% of a year ago
Placements on Feed: 106.3% 109%
Marketed: 104.3% 105%
Baker Hughes began issuing weekly crude oil rotary drilling rig counts in the USA and Canada in 1944. They initiated the monthly international rig count in 1975. The reports are released at noon the last business day of the week. Active drilling rig counts is a very reliable way to predict crude oil supplies three to nine months down the road. Here is yesterday’s report:
Crude oil settled at $112.6, up $0.26
The dollar index settled at 98.81, up 0.02
July palm oil settled at 5,858 MYR, up 80. 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 settled at $111.74, up $2.49 per cwt. The contract high was made yesterday at $112.27 per cwt. Cotton competes with soybeans and corn for acres.
July natural gas settled at $5.701, up 0.163. The contract high was made yesterday at $5.705. Natural gas is the primary cost to manufacture nitrogen fertilizer.
July ULSD settled at $3.3774 per gallon, up 0.0184. The contract high was made March, 9th at $3.7675. ULSD stands for Ultra Low Sulfur Diesel.
Rain Days Update
Yesterday, in the dry areas of South America: Santa Maria high temperature 74°F with 0 inches rain. Cordoba high temperature 83°F with 0 inches rain. Salto high temperature 61°F with 0.1 inches rain. Total rainfall and temperatures expected in the next ten days: Santa Maria 1.99 inches, 69 to 88°F. Cordoba 0.06 inches, 67 to 87°F. Salto 0.16 inches, 65 to 82°F.
The Western Corn Belt has 1 less rain days in the 10 day forecast than yesterday and the Eastern Corn Belt has 2 less rain days than yesterday.