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Tidbits, Put Options, Broilers & Ethanol, Markets & Rain Days Update 04/21/2022

Highlights


Because feed wheat is so expensive, the US Ag Attaché in Vietnam expects corn imports to increase 600,000 mt this year.

ABIOVE left their Brazil soybean estimate unchanged at 125.3 million mt (USDA at 125 million). They did lower their export estimate 500,000 mt to 77.2 million (USDA at 82.75million mt).

BAGE estimated Argentina’s wheat planted area would be about 6.5 million hectares, down 200,000 from last year.

Turkey is expected to increase wheat production by 1 million mts to 17 million this year despite high input costs according to Foreign Agricultural Service of the USDA. Turkey is the world’s largest flour exporter.

Nine tankers carrying Russian crude and fuel oil have unloaded in the United States this month and are likely the last ones to deliver due to sanctions. April 22 is when the ban on imports of Russian crude and refined products takes effect.

The weekly energy report showed crude oil inventory had declined more than anticipated, but futures did not provide a bullish reaction. Diesel inventories also declined last week and May diesel futures yesterday at the second highest settlement ever.

 

Wheat Put Options Lessons, part 5


Yesterday’s option lesson ended with the question of when did the September $10 put option (and all September put options) die and dead beyond all doubt?

Was it when the $10 put became worthless? Meaning no one would pay even a fraction of a cent for it? No.

Was it when the wheat futures hit $25? No.

All the CBOT September 2022 put options will be alive (viable) until the end of trading at CBOT on August 26th.

For the example, we had September wheat at $25 in June and $6 on August 26th.

What do you suppose the right to sell September wheat futures at $10 is worth on its last trading day with September wheat futures at $6.00?

Yep, $4.00 a bushel. The buyer can:

  1. sell that put option for $4

  2. can exchange it for a short (sold) futures position at $10 or

  3. walk away from it with no penalty.

Even when that option was worthless for several months in the early summer, it still gave the owner the right to sell September wheat futures at $10.

Clearly, if a farmer sold September wheat futures even at the high price of $11, he would never feed his futures account $14 per bushel ($70,000 on one 5,000 bushel contract), but the put option was never liquidated because the financial loss was limited to the cost of the put.

When wheat futures price was above $18 or so, that $10 put was worthless because nobody would pay anything for it. Even though it was worthless, it was still viable; the right to sell at $10 was always there until the close of business on expiration day. Never forget that.

September wheat settled yesterday at $10.95¼, down 9¾ cents, so the premiums of the puts were (late insert should have been) up.

Since the delta of the $10.00 put is 0.31, the premium of the $10.00 put should have moved higher by 0.31 times the futures change of 9¾ cents which = 3.0225 cents which = about 3 and 3/8 cents.

On Tuesday’s close, the $10.00 put premium was 54¾ cents. Yesterday, the premium settlement was 55¼ cents, a change of only a half cent.

Well, shucks; that is why we say nothing is 100% in this business! The premium should have moved higher by about 3 cents!

Options values, like futures values are determined by “bid & ask”; specifically, what price is someone willing to pay for the option and what price is someone willing to sell the same option. You have all been to auctions and have seen things that went way too low or way too high.

There is a possibility the options traders thought the futures were too low and did not increase the put options prices as much as the delta indicated.

In any case, on Wednesday, the September 2022 $10.00 CBOT wheat put gained $25, which is a half cent on 5,000 bushels.

If one had a short September futures position, Wednesday’s profit would have been $497.50.

Again, which is better? Making $25 or making $497.50?

Take a look at yesterday’s premium below and the day before for the $9.00 put… The $9.00 September put’s premium actually lost a quarter cent yesterday! Now that is a bummer! Futures go down and the value of the put went down also; it is not supposed to work that way! But auctions do work that way sometimes.

Wednesday’s market action smells (feels, gut feeling, intuition, instinct, etc) like a “bear trap”. A “bear” is a person who thinks the market will move lower… as I (Roger) do! Wednesday’s futures action allowed us bears to think we are finally right about the market going lower because the futures traded lower and settled lower than any day since April 11th. But I sense this may be a trap because the options did not trade the way they should have traded.

Welp, we will know by Friday if not today. Maybe a person who owns a put should consider selling it or buying futures with the put as a floor on the futures potential loss, but I hate making those kinds of decisions based on a gut instinct when the market finally moves the way I predicted.



 

Broilers & Ethanol Update

Last week:

Broiler egg set was down slightly than the same week a year ago.

Broiler egg hatch was up slightly than the same week a year ago.


Average daily ethanol production:

947,000 barrels last week.

995,000 barrels the previous week.

941,000 barrels the same week a year ago.

563,000 barrels the same week two years ago.


Ethanol inventory was 24.342 million barrels compared to 24.803 million barrels the previous week.


 

Market Data


This morning: Crude oil is at $103.54, up $1.35 The dollar index is at 100.07, down 0.32 July palm oil is at 6,357 MYR, up 49. The contract high was made yesterday at 6,546 MYR. Palm oil owns 36% and soybean oil owns 28% world market share. December cotton is at $120.69, down $0.33 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 is at $7.025, down 0.133. The contract high was made April, 18th at $8.279. Natural gas is the primary cost to manufacture nitrogen fertilizer. July ULSD is at $3.5312 per gallon, up 0.0336. 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 6 less rain days in the 10 day forecast than yesterday and the Eastern Corn Belt has 1 less rain days than yesterday.


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