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Wheat Carryover & Ukraine Production, Put Options, Rain Days Update 5/22/22

Highlights


Grain exports out of the US through the Great Lakes have reached 176,000 mts since the start of the shipping season in March. That is more than double the grain tonnage a year ago of just 64,000 mts. The Port Authority in Toledo sees grain and fertilizer the big movers this year as “trade and pricing patterns fluctuate based on various global happenings.”


More than 28 million metric tons of cargo on 2,976 vessels was shipped through the St. Lawrence Seaway in 2021.


China’s seaborne Russian oil imports will jump to a near-record 1.1 million barrels per day in May, up from 750,000 bpd in the first quarter and 800,000 bpd in 2021. Russia is selling crude oil to China $29 less per barrel than before the invasion and it is a boon for China’s oil refiners as they face shrinking margins in a slowing (COVID) economy. India is getting a discount on Russian oil also, probably the same discount as China.


Two months ago, there were analysts predicting no spring wheat would be planted in Ukraine. Thirty days ago, estimates were that spring wheat in Northern Ukraine would be at least 50% less than a year ago. World-wide respected Black Sea grain market analyst, Andrey Sizov, said he sees around a 20% decline in the planted area. He also said that when the Russian military left the Kyiv area (in Northern Ukraine), it not only allowed for additional spring wheat to be planted but also a surprisingly large corn acreage that the world marketplace has yet to recognize.


Sizov says Ukraine will likely export 5 million mt (184 million bu) less wheat and 12 million mt (472 million bu.) less corn than the pre-war estimates and those numbers are already priced as the war started three months ago this Tuesday. While the market thinks the world is in danger of running out of wheat, a 184 million bushel reduction of Ukrainian wheat will reduce the world wheat available carryover from a 129 day supply to a 126 day supply on hand May 31st.


The British widely read and respected publication, The Telegraph, reported today, with great detail, that there will be just enough wheat to meet the needs of the world for ten weeks on May 31st. The last sentence of the article states: The world will have just 33% of the world’s annual consumption of wheat at the end of the marketing year. Basic math: 33% of 365 says in a year = 120.4 days.

The world wheat problem is not that there is not enough wheat. The problem is the poorer countries of Africa who buy their wheat from the Black Sea area where wheat is $74 per mt cheaper than US and Canadian wheat and the Black Sea is $34 freight per mt closer.


 

Wheat Put Discussion

After the Close Friday May 20th.

September 2022 CBOT wheat futures settled at $11.74½, down 31½ cents. All puts should have increased in value since the futures price was down significantly. The $9 put gained ¼ of a cent, +$12.50. The $10 put gained 2½ cents, +$125.00. The $11 put gained 4¾ cents, +$237.50. Settlement price was 61¾ cents. A short futures position gained $1,575. The wheat in the field or bin lost about $1,575 because cash price = futures plus basis. Farmer Dan bought the $9 and $10 puts for 29 cents each. Farmer Joe bought the $10 and $11 puts for 59 cents each. If Joe and Dan hedged the wheat in their own account and bought the puts as described: Joe has $5,187.50 tied up in his options and futures account, $5,212.50 less than last Tuesday because the September futures price is down $1.04¼ since Tuesday. Dan has $8,187.50 tied up in his option and futures account. $5,212.50 less than last Tuesday because the September futures price is down $1.04¼ since Tuesday. Don who did not sell the futures, but bought a $9 put for 26 cents and then a $10 put for 26 cents. Don has invested $2,600, same as last Tuesday. Junior, who did not sell futures, but bought the $10 put for 59 cents and then bought the $11 put for 59 cents. Jr. has $5,900 invested, same as last Tuesday.



 

Rain Days Update


The Western Corn Belt has 3 more 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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