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Tidbits, USDA S&D, Put Options, Export Sales, Markets & Rain Days Update 5/13/22

Highlights


Nothing in yesterday’s USDA numbers changed the outlook other than wheat looks less likely to get below $6 or $7 and old beans should get higher than we previously expected. More details this weekend, but take a look at the attached S&D for a lot of interesting details. All three wheat futures and new crop corn made new contract highs. Beans will catch up.


Yesterday morning, the USDA announced the sales of:

68,000 mts of old crop corn to China

544,000 mts of new crop corn to China


After opening a month ago Federal Lands for oil and gas leasing, the Biden Administration cancelled pending oil and gas leasing opportunities in Alaska’s Cook Inlet, citing a “lack of industry interest,” and halted two leases in the Gulf of Mexico. Another leap higher yesterday in diesel and gasoline prices.


The producer Price Index (PPI) is the measure of inflation at the wholesale level. For the month of April, PPI was up a half percent from March and up 11% from a year ago. The market expected a rise of 10.7% for the past 12 months.


Southwest region of Goiás is expected to lose about 40% of the safrinha corn after 30 days without rain.


US Secretary Antony Blinken:

Ukraine is a critical source of agricultural products and a key link in the global food supply chain. Russia's blockade is preventing these goods from leaving and threatening millions of people around the world with malnutrition and famine. The blockade must end.

Sounds like fighting words.


 

Attached is our simplified version of the USDA wheat, corn and soybean S&D:

0522 S&D
.xlsx
Download XLSX • 18KB

 

Wheat Put Discussion

After the Close Wednesday May 12th.

September 2022 CBOT wheat futures settled at $11.81¾, up 64½ cents. All puts decreased in value since the futures price gained a whole bunch.

The $10 put lost 12 3/8 cents while the $9.00 put lost 4 5/8 cents.

A short (sold) futures short lost $3,225.

The $10 put lost $618.75.

The $9 put lost $232.25.

The wheat in the field or bin gained about $3,225 because cash price = futures plus basis

If one had bought a put to protect the down-side risk, meaning the put established a floor price, yesterday was a great day. Yes, the put lost money, but that loss was chicken feed compared to what the cash value of the wheat gained.

On the other hand, if a person did a HTA or sold futures to establish a floor and then, after the price went up quite a bit and bought a put, today was a bad day, especially if the hedge was in the farmer’s trading account (margin call!). In that case, to turn a bad day into a good day, another put needs to be purchased at a higher strike price for the same premium (cost) paid for the first put option. The only reason not to buy another put is if one thought wheat would never be below $10.00 again. Don’t be silly. That was also predicted in 2012 and 2008.

For this put option training exercise, the wheat was sold at the elevator on an HTA or in the farmer’s futures account last January in the July 2022 Soft Red Winter contract at $7.97, which is what we recommended for the soft red winter wheat.

On April 14th, we recommended September put options be purchased with July wheat at $11.04 so we could have the opportunity to make money on the way down not made on the way up because the wheat was contracted at $7.97. We suggested the September $9.00 put at 26 cents or the $10 put at 59 cents. We have been tracking those two puts and September futures every day ever since. Here is where we are now:

The wheat is still hedged at $7.97 in the July contract and has lost $3.82 as of yesterday’s close; that hedge loss is $19,100 per 5,000 bushel contract. If a person had bought the $9 September put at 26 cents as we suggested on April 14th, that put has lost 15 cents a bushel for an additional loss of $750.

If that put expires worthless, the $7.97 HTA or hedge will have to be discounted 26 cents (cost of the $9 put) to cover the cost of the put. That would make the $7.97 HTA or hedge a net of $7.71 and that would be the minimum price that the wheat would be sold for.

As long as that $9 put has not expired (run out of life on August 26th), there is a reasonable chance that put could be sold for more than the current value of 10 7/8 cents. If so, that income would be added to the HTA or hedge value of $7.71.

If one had bought the $10 put for 59 cents as we suggested, the formula is the same, only the numbers are different.

$7.97 minus 59 cents = $7.38 minimum price contract. If the $10 put is sold for any amount above zero, those pennies per bushel would be added to the $7.38 minimum price.

However, if one had not executed a sale at $7.97 in the futures or any other price and bought a put to provide a floor price, one could contract at July wheat on the close yesterday at $11.79. Subtract the 26 cent cost of the $9 put = $11.73 HTA price or:

Subtract the 59 cent cost of the $10 put = $11.20 HTA

Clearly, we wish we had only recommended buying puts and not sold futures at $7.97, but August 26th is more than three months. So, if the wheat was sold on a HTA and if a $9.00 put was bought at 26 cents, place an open order to buy a $10 September wheat put at the same 26 cents. As you can see below on the price chart for puts, that $10 put settled at 28 cents yesterday. Get the order in now. If that put is bought, one would have a $9 and a $10 September put. The only reason not to buy another put is the price of wheat will not go below $10 by August 26th. It is possible, but highly unlikely.

If one had bought the $10 put at 59 cents, place an order to buy an $11 put at the same 59 cents. The $11 September wheat put settled at 62½ cents yesterday, so get that order in also.

This market program will really get interesting as we track the price of the wheat and those options.


 


Weekly Export Sales Updates



 

Market Data


This morning:

Crude oil is at $107.12, up $0.99

The dollar index is at 104.69, down 0.16

July palm oil is at 6,450 MYR, up 108. 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 $127.75, up $0.08 per cwt. The contract high was made May, 4th at $129.91 per cwt. Cotton competes with soybeans and corn for acres.

July natural gas is at $7.770, down 0.065. The contract high was made May, 6th at $9.052. Natural gas is the primary cost to manufacture nitrogen fertilizer.

July ULSD is at $3.7638 per gallon, up 0.0275. 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 14 less rain days in the 10 day forecast than yesterday and the Eastern Corn Belt has 3 less 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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