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Grain Supplies, Put Options, Markets & Rain Days Update 5/16/22

Highlights


Wheat opened sharply higher last evening, moved up to the 70 cent limit for a short while before moving 10 to 25 lower and sideways into the night. Corn and beans both opened sharply higher and weakened a bit. New crop December corn did trade a few cents below last week's contract high of $7.58. This afternoon's weather forecast and planting progress will dominate trade tomorrow.


India's Commerce Secretary said 4.3 million mts of wheat have been contracted for exports. He said all buyers who have issued the Letter of Credit will have the wheat shipped according to one Indian official while another official said all 4.3 million mts will be shipped.


Egypt's Prime Minister said on Sunday his country has wheat supplies sufficient to cover its needs for four months and enough vegetable oil to cover the next six months. Egypt is the biggest wheat importer in the world and they have booked another half million mt of India's wheat.


 

Reality Check on Supplies of Corn, Beans and Wheat


Carryover is the amount of a commodity on hand at the end of a given marketing year. The USDA tracks those numbers for every major producing country and buyer of all commodities as well as the world as a whole. All those numbers were updated last Thursday by USDA. We translate those carryover quantities to the number of days the carryover for each marketing year will meet the needs into the next marketing year for each country and world before the new crop has to be used.

The world carryover in terms of days' use is:

  • Soybeans: 86 days old crop; 96 days new crop

  • Corn:94 days old crop; 94 days new crop

  • Wheat: 129 days old crop; 124 days new crop; the old crop wheat marketing year ends in 15 days.

The world will have enough 2021 wheat left over on June first to meet all the needs of the entire world until October 8th, 2022 before we need to use the first kernel of 2022 wheat. Yep, we are all going to starve to death due to a lack of wheat.


Every month we translate the USDA corn, wheat and soybean Supply & Demand Report and send it to you so all of us can easily understand exactly what the three most important price factors are, namely carryover, carryover and carryover. You received the May S&D last Friday.


 

Wheat Put Discussion

After the Close Friday May 13th.

September 2022 CBOT wheat futures settled at $11.81, down ¾ of a cent. In theory, all puts should increase in value when the futures price is down, but ¾ of cent does hardly covers the loss of one day’s worth of time value.

The $10 put lost 1 cent while the $9.00 put lost 5/8 of cent.

Since both options are out-of-the-money, 100% of their premium is time value, meaning the entire premium is the value the market puts on the probability September wheat will be below the strike price of each option on expiration day, in this case, August 26th, which is 71 business days away. The $10 put premium divided by 71 days = 3/8ths of a cent.

A short futures short position made $37.50.

The $10 put lost $50.

The $9 put lost $31.25.

The wheat in the field or bin lost about $37.50 because cash price = futures plus basis.



 

Market Data


This morning:

Crude oil is at $109.35, down $1.14

The dollar index is at 104.60, up 0.04

July palm oil is at 6,369 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 $129.85, up $1.86 per cwt. The contract high was made today at $130.00 per cwt. Cotton competes with soybeans and corn for acres.

July natural gas is at $7.921, up 0.156. The contract high was made May, 6th at $9.052. Natural gas is the primary cost to manufacture nitrogen fertilizer.

July ULSD is at $3.7238 per gallon, down 0.0370. 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 1 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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