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Supreme Court, Soybeans Recommendations, Export Inspections, Markets & Rain Days Update 05/03/2022

Highlights


All Supreme Court decisions are highly secret until formal release through proper channels. About 7:30 PM Central time last evening, a copy of a 92 page Supreme Court decision to return abortion laws to the states was leaked to the press. Within an hour, a mob had gathered around the Supreme Court Building as police were hurriedly erecting barricades around the court house. This leak to the press means one of the Supreme Court Justices or a clerk broke the law and deserves prison time. No court decision has ever been leaked in the 244 year history of the court.


There will be chaos in Washington and around the country, especially in liberal states and cities. That includes Chicago where the CBOT and CME do their business. We are not predicting a disruption in futures trading, but it sure could happen. Mob violence in Chicago in 1968 came close to shutting the entire city down. There was a whole lot more law and order in Chicago in ’68 than there is now. We need to keep a close eye on the potential disruption of not only futures trading, but the entire transportation system could collapse. This could bring down the US government as liberals will not obey the law. The key will be what will conservatives do as the liberals trample the Constitution. The Biden Administration, Justice Department nor the FBI will protect the Constitution.

 

Even though China was on the Annual Communist Holiday of May first, China’s Purchasing Managers’ Index (PMI) for April was stated to be 47.4 compared to 49.5 reported for March. A PMI of 50 means the industrial companies’ buyers for raw materials expects to buy the same amount of inputs the next month as the previous month. PMI is a reliable indicator of short term business consumption of energy as well as all other inputs. China is the world’s largest buyer of crude oil and crude took a nasty $4+ thumping yesterday morning, but closed higher.


Lower crude hurt beans and corn (less biofuel demand) and then Indonesia said the two-month ban on its exports of refined palm oil will end after one month. That gave beans an extra kick in the head and technical selling kicked-in, but the major area of support held on July beans and November beans never got close enough to test intermediate support area.


Safrinha crop in Brazil is hurting for water in Mato Grosso, which grows more than a third of Brazil’s corn. A wide area of Moto Grosso will have the driest April to 10 May in the last ten years. And it was really dry last year.


Gulf basis for soybeans was strong yesterday and so was barge freight. Gulf corn basis was steady.


 

The USDA reported yesterday afternoon the total soybean crush in March was 193 million bushels, slightly lower than the 193.3 million bu expected, but a huge number, none-the-less.


Wheat jumped yesterday morning from sharply lower to sharply higher when India reported March was the hottest March in 122 years. Their wheat crop is harvested March through May, so much of the wheat was mature when the record high temperatures arrived in mid-March.


In mid-February, India’s government was looking at an all-time high wheat production of 111.32 million mts, up from the previous year's 109.59 million mts.


The Indian government has not yet revised its wheat production estimate, but their next estimate could be as low as 105 million mt. This news comes after India boasted they had plenty of wheat to make-up for the lost exports from Ukraine. India was expecting its sixth consecutive record large wheat crop this year until a few weeks ago. There still is plenty of wheat to cover the shortfall from Ukraine.


The Federal Reserve meeting is scheduled for Tuesday and Wednesday this week. Two weeks ago, it was a cinch that interest rates would be raised a half percent. Then a week ago, the GDP report said the US economy contracted in the first quarter. Raising interest rates when the economy is struggling is not good, but neither is inflation.


New home mortgages are over 5% interest and all applicants for home loans this week are being told to budget 6%. Home prices declined 3% last month. More interest = less house.


New Orleans (NOLA) barge urea traded at $620 per ton yesterday, down from $720 two weeks ago.

 
Roger, now that we are close to the time of pricing new crop bushels and buying puts on all the bushels, do you recommend the puts on new crop contract months? Also, to keep the price down, is there any particular option strategy you would recommend, such as selling (writing) calls to offset the cost of puts?

Yes, we will be recommending November bean puts and December corn puts. Seldom is the fall low made in August. September options expire August 26th. The seasonal trend on beans is down until 10 October and corn until late October early November.


A couple weeks ago, Olga bought a $6.00 December corn put for 17 cents and wrote (opening sell position) a $10.50 December corn call for 15 cents. If December settles between $6.00 and $10.50 on November 25th, both options expire worthless and she loses 2 cents. If December corn settles at $5.00 on November 25th, she makes 98 cents to add on to her HTA. If December corn is $11.50 on November 25th, she will be short December corn at $10.50 with December corn at $11.50. This morning, with December corn at $7.45, the $10.50 call is trading at 14 cents and the $6.00 put is 12½ cents. Of course, any option position can be liquidated any business day.


I prefer corn put options in the 30 to 40 cent category. This morning, a $6.60 put is 31 cents and a $9.00 call is 32 cents. Buying that put and writing that call that position means if December corn is below $6.60 on November 25th, the settlement price of December corn subtracted from $6.60, will be added to the net cash price of the corn. Last year, the December corn low was $4.97 on September 10th.


If this year’s low is $5.97 on the same day as last year’s low, one could sell the $6.60 put for 63 cents plus 2½ months of time value on September 10th and add about 73 cents to the HTA price. That means, if the HTA is priced within 70 cents of the top of the market, the net a HTA price will be above the top of the market. Some merchandisers and bankers will tell you netting a price above the top of the market has to be illegal. If you do it with puts and a HTA, it is not illegal.


Unless you thoroughly understand writing options and know there is a risk of margin calls on any written option, do NOT be writing any calls. Writing calls without having a full understanding of how they work is like climbing into an airplane to fly it havening never been in an airplane before. We will be doing some recorded webinars on writing calls very soon for you to get a handle on options and specifically write calls.


There will be no deliveries assigned today for May soybeans, soy meal, soy oil or corn. KC May wheat will have 13 contracts assigned and CBOT wheat will have 159 contracts delivered.


 

September Wheat Put Update

September wheat futures settled unchanged yesterday at $10.58. Therefore, the intrinsic value of all the September options was unchanged. What about the time value? The options lost one day of life, so the probability of the futures increasing the value is a bit less as well as volatility continues to calm down, further reducing the time value. The $10 put settled at 60¾ cents, down 7/8ths of cent. The $9.00 put settled at 25¼ cents, unchanged.


Weekly export inspections yesterday showed corn near the high end of the range of expectations, beans at the low end and wheat in the middle.


 

Weekly Export Inspections Update


Weekly export inspections yesterday showed corn near the high end of the range of expectations, beans at the low end and wheat in the middle.


 

Market Data


This morning:

Crude oil is at $104.24, down $0.93

The dollar index is at 103.51, down 0.23

July palm oil is at 7,104 MYR, unchanged. 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 $126.25, up $0.06 per cwt. The contract high was made today at $126.75 per cwt. Cotton competes with soybeans and corn for acres.

July natural gas is at $7.747, up 0.181. The contract high was made April, 18th at $8.279. Natural gas is the primary cost to manufacture nitrogen fertilizer.

July ULSD is at $3.8079 per gallon, down 0.0235. The contract high was made yesterday at $3.8846. 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 5 less rain days than yesterday.


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