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Tidbits, Russian Crude, Q&A: May and July Corn, Rain Days Update 2/26/23

Highlights


Russia announced yesterday it will reduce its oil exports from its western ports by up to 25% in March, exceeding its previously announced last week production cuts in a bid to lift prices for its oil. Russia had already announced plans to cut its oil production by 500,000 barrels per day in March, amounting to 5% of its output.

So, if a 5% cut = 500,000 barrels, 25% would be 2.5 million barrels a day. Higher crude price = means fuel blenders will be willing to pay more for biofuel feedstock. The whole world uses about 99 million barrels a day. Take away 2.5 million of those barrels… looks bullish to us. And March is just two days away!

Russian officials said the “voluntary” output cut would last one month and would be based on January output levels, not February’s reduced production.

Reuters News Service reported Friday that insurance companies are facing half a billion dollars in claims for 40 to 60 commercial ships still stuck in Ukraine a year after the start of the war.

Ukraine’s parliament was quick to pass legislation late Friday to establish a half billion dollar insurance fund to cover insurance losses for ships in or entering Ukrainian ports.

 

Tidbits


Friday’s Cattle on Feed numbers as a percent of a year ago:

  • On Feed: USDA 96%, expected 96.5%

  • Placements: USDA 96%, expected 97.1%

  • Marketings: USDA 104%, expected 103.9%

Baker Hughes reported the number of rigs drilling for gas or crude oil in the US was 753 last week, 7 fewer than the previous week. Likewise, Canadian rigs were down 4 to 244 rigs.

Nigeria's elections yesterday were less violent than expected, but there were some delays at some polling stations. The electoral commission said the official results are expected late today.

Africa's most populous nation (Nigeria) is struggling with Islamist insurgencies, an epidemic of kidnappings for ransom, conflicts between herders and farmers, shortages of cash, fuel and power, as well as deep-rooted corruption and poverty. Nigeria is a major exporter of crude oil.


 

Q&A


"Good Morning Roger, With the past couple days’ events in the grain market, would it be a good time to move a basis contract from May to July? You've said before, when the market is inverted, it is to the producer's advantage, and now it is looking like it will take past May options expiration before we find the top. I am thinking strongly about getting my merchandiser to purchase a $6.50 July call for me against part of these bushels to capture a bit of upside. Solid plan or shoot it full of holes? Thanks, Clint"

Clint, an inverted market is an advantage for a grain seller because an inverted market is a bullish market; prices can be expected to continue the uptrend. If the uptrend continues, May corn will gain on July corn, so you want to stay in the May if you think the uptrend will continue, which I do.

There is another reason that an inverted market is good for those with basis contracts and that is because when the basis contract is rolled from the nearby month to a deferred month, the nearby month is sold to offset the buy (long) position and it will be replaced with a buy position in a deferred contract.

For those of you with March basis contracts, Monday (tomorrow) before the close is when all long CBOT March positions need to be liquidated to avoid any chance of being assigned a delivery. All that means is the March corn (ore beans or wheat or oats) will be sold and May or July will be bought.

On Friday:

  • March corn settled at $6.50; $6.59½ a year ago this date

  • May corn settled at $6.49¼; $6.55¾ a year ago

  • July corn settled at $6.38¾; $6.44 a year ago

If you have a March basis contract, you will tell your merchandiser to sell the March (on the high for the day).

If you want to stay “long” the market, you will tell your merchandiser to buy a deferred month.

Since both May and July are at a lower price than the March, the March sale will be at a higher price than the buy, which is the American way.

You have two decisions to make:

  1. Do you want to stay long the corn market? We do.

  2. If so, do you buy May or July?

If corn returns to an uptrend, the May will gain on the July. Last year, May went 44½¢ premium to July. If that happens this year, being in the May will make you about 32¢ more than being in the July.

On this date last year, the old crop corn carryover was a 38 day supply for the US and 92 days world.

This year, the old crop carryover is a 33 day supply for the US and the world is 93 days.

Last year, the safrinha planting progress in Brazil was way ahead of normal (bearish). This year it is way behind normal (bullish).

Last year, Poet, Iowa Falls was paying 5 under the May. Today, they are paying 13 over the May.

Last year, Dayton Cargill was paying 15 under the May. Today they are paying 7 over.

May corn is just 7¢ lower today than a year ago.

If I (Roger) had corn on a March basis contract, I would be rolling to May without a second thought. I would do the same if I had a soybean basis contract.


 

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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