Highlights
Russia's government is expected to “officially” default on May 4, when the 30-day grace period on its dollar-denominated bonds expires. Russia failed to make $650 million of interest and principal payments due on April 4 in dollars because the US Treasury blocked American banks from processing the transactions. Russia paid the debt service in rubles through the National Settlement Depository to cover the debt service obligation, which was not considered a payment because it was not in dollars. While no one is saying what happened with those rubles, we are guessing the rubles were not returned to Russia.
The money people on Wall Street say their source at the Federal Reserve say after a 50 basis point (half a percent) interest rate increase in May, 75 basis points increase s coming in June and again in July.
Friday afternoon Cattle On Feed Report Expected Actual On Feed: 100.4% 101.7% little more corn for feed than a year go Placements: 92.3% 99.6% Marketings: 98.1% 98.0%
Russia plans to export grain from the newly occupied regions of Kherson and Zaporizhzhya in southeastern Ukraine. Locals in Crimea report trains are heading to those regions and all the cars are empty hopper bottoms.
Planalytics increased US 2022 winter wheat yield to 49.5 bushels per acres; USDA is at 49.1. Kansas estimated at 44.4 bushels and Oklahoma at 31.1 bushels per acre.
SovEcon (Andrey Sizov) boosted the Russian wheat crop estimate to a record of 87.4 million mts, up from 86.5 million last month. That is an extra 300 million bushels of wheat for the export market.
The 14 day weather forecast for Brazil’s Safrinha corn crop turned warmer and drier than normal yesterday.
More snow for the Upper Midwest on Sunday delaying planting of a high percentage of the spring wheat and a small percentage of corn. Because corn is so tight, the market will be more sensitive to weather all year and that means some concern about a two-week delay in planting.
Indonesia and Malaysia produce 95% of the world’s palm oil. In the world’s vegetable oil market, palm oil owns a 36% share. Soybean oil is the second place shareholder at 28%. Indonesia announced yesterday that, as of 28 April, exports of cooking oil and palm oil will be banned until further notice. It is amazing that soybeans were sharply lower yesterday. That is truly one of the great market mysteries of all-time.
Indonesia consumes about 16 million mt of vegetable oil per year, but produces about 28 million mt. Therefore this export ban will not last more than a few months at the most unless 12 million mt of palm oil finds its way into biodiesel.
Bloomberg estimates China’s total oil demand for April will be down 20% due to the covid lockdown. That should keep a lid on crude oil prices for a while since there is no indication the lock down will end soon.
23 April 2022 Put Option Discussion Continues
When the futures market opens tomorrow evening, you can spend 30 cents a bushel for the right to lock-in a HTA price for your corn at $6.40 on December futures. December corn futures settled at $7.24 yesterday.
The question we left you with yesterday morning: If a corn farmer buys corn puts to lock in a floor price for his corn, does he want those puts to make him money?
A floor price by definition is the lowest price a farmer will be paid for his grain. We all want to be paid more than the floor price for our grain. So, if a farmer paid 30 cents to lock in $6.40 HTA, he wants that price insurance policy to expire worthless, because, if it does, he will be selling his corn above the floor price.
Roger recently had a prospective client ask him, “Do your clients with hedge accounts make money trading futures most years?” The truth is no, they don’t because the purpose of a hedge is to shift the risk of price change to somebody else. If a farmer buys puts in his hedge account every year to lock-in a floor price, he wants to lose money every year in the hedge account. A speculation account is where the trading profits are supposed to accumulate.
Yesterday, September wheat settle 2 cents lower at $10.73¼. Lower futures price means the puts should have increased in value. On the chart below, you can see the $10.00 September put settled at 58 and 1/8 cents. That was down 1 cent! The $9.00 put settled at 23½ cents, up 5/8 of a cent.
Don’t be thinking put options do not work. Remember this:
On expiration day, if September wheat is at $8.60, absolutely the $9.00 put will be worth 40 cents and the $10.00 put will be worth $1.40. If September wheat on expiration day at $9.42, absolutely the $9 put will be worthless and the $10 put will be worth 58 cents. If that is not perfectly clear, ask yourself: If I had the choice to sell September wheat at $10.00 or $9.42 or $9.00, which price would I choose to sell wheat futures?
Market Data
This morning: Crude oil settled at $101.75, down $2.04 The dollar index settled at 101.12, up 0.54 July palm oil settled at 6,355 MYR, up 42. The contract high was made April, 20th at 6,546 MYR. Palm oil owns 36% and soybean oil owns 28% world market share. December cotton settled at $119.16, down $1.02 per cwt. The contract high was made April, 14th at $124.36 per cwt. Cotton competes with soybeans and corn for acres. July natural gas settled at $6.753, down 0.436. The contract high was made April, 18th at $8.279. Natural gas is the primary cost to manufacture nitrogen fertilizer. July ULSD settled at $3.4659 per gallon, down 0.0134. The contract high was made March, 9th at $3.7675. ULSD stands for Ultra Low Sulfur Diesel.
Rain Days Update
The Western Corn Belt has 4 more rain days in the 10 day forecast than yesterday and the Eastern Corn Belt has 2 more rain days than yesterday.
