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Tidbits, Nitrogen, Soybean Meal Puts Exercise, Rain Days Update 5/21/23

Highlights


Kevin Duling, market advisor and futures broker in Maupin, Oregon (kdinvestors@gmail.com and phone 541 980 4554) said:

"The Pacific Northwest is losing 2-3 million bushels of soft white wheat a day as temperatures are in the 90s. A three day break into the 70s is coming, but it is warm again after that."

As of this morning, there is no appointment scheduled to renew the negotiations concerning the USA debt ceiling.

 

Tidbits


As a result of the war between Ukraine and Russia, the flow of cheap natural gas from Russia to the European Union was severely restricted. The price of natural gas in Europe increased ten-fold and the production of nitrogen fertilizer, for the most part, in Europe came to a screeching halt a year ago.

Imports from North America of liquefied natural gas, pipeline gas from EU neighboring countries, and mild winter temperatures allowed some of Western Europe’s nitrogen production to resume late this past winter. But German nitrogen producers have not restarted production. Nitrogen fertilizers manufacturers say they see no significant solution to the shortage of natural gas for Germany coming this winter.

Due to nitrogen shortages, all European countries, especially Germany, have increasing demand for fertilizer imports. Russia is the cheapest nitrogen supplier. In the 2022 fertilizer season, Russia’s share of German nitrogen imports was 19%. This year, the share of Russian nitrogen for Europe’s imports 37.1% and growing, more so for Germany. War does not stop allies on opposite sides from making money by trading with each other. Could Russia shut off nitrogen to the EU? Yes, but not likely.

Baker-Hughes reports the USA had 720 oil and gas drilling rigs in operation last week; that is 11 fewer than the previous week and 8 fewer than a year ago. Canada had 85 rigs drilling, 9 fewer than the previous week and 3 fewer than a year ago. This trend is not what we like to see.


 

September Soybean Meal Put Update


September soybean meal settled Friday at $391.50 per short ton, down $5.90. Each option is for 100 short (2,000 lbs.) tons. Participants in our put training exercise paid $5 a ton for the five strike price puts listed below. Listed is the current value (premium) of each of the five puts and the change for Friday:

How long do we recommend you keep your puts?

If one was looking to double his investment, there it is. If you did that every six months for a couple years, you would have your picture on the cover of Forbes Magazine.

Roger’s opinion is to keep the puts at least as long as the price trend is making lower highs and lower lows on each “wave” and then expect the market action to be choppy (sideways for a month or two) and pick a day when futures are near the low of the sideways trading range to sell the puts or sell the puts on expiration day (August 25), whichever comes first.

When the big spec funds start unwinding (liquidating) their bean oil/bean meal spreads (bought bean oil and sold bean meal; the buy side is always stated first), Roger thinks September bean meal futures will easily reach $340 and $300 is probably closer to the low than $340 will be. Last year, the day July soybean futures made the high for the year at $17.84 on June 9th, July soybean meal traded at $413. July 2023 beans settled Friday at $13.07. Yep, soybean meal has a lot of down-side potential and meal can and will go down while beans are going higher because bean oil will be the price leader.

Note the price action since January:

For more information about head and shoulders formation, go to:

Background

In January, we recommended participating or following the put program, as we wanted our clients to use this same put program when we or you think corn, beans and wheat has topped or the downside risk needs to be eliminated. We had done the same exercise on soft red winter wheat beginning 14 April 2022 with September 2022 wheat puts. It was very profitable.

The put program enables one to capture the extra profit of a higher futures price even after 100% of the crop has been priced. For the soybean meal example, there was not contracting of meal, simply using the meal puts to demonstrate how puts can be a valuable marketing tool for you.

Buying puts for a fixed price per put, but progressively higher strike prices will automatically pick the top of the market, no matter how high it is. The key to success is not to get emotional and do not run out of money. This put program is a marathon and cash is the oxygen to keep it going. You need to analyze the cash resources you and your merchandiser have and spend an amount on each put that will allow you to buy multiple puts as the futures market goes higher. The last put purchased will make the most money and we do not want you to miss it. There will never be a margin call for a purchased option. The risk of buying a put (or a call option) is limited to what is paid for the option.

For this educational put program, we selected soybean meal because the nearby meal futures contract had already moved $100 per ton higher by January from its July lows to the $480 range and was still in an uptrend. The all-time high for meal futures was $554 in 2012. We did not expect meal futures to take out $554 by any significant amount.


 

Audio Version


 

Rain Days Update


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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