In last Monday’s webinar as well as this weeks, we discussed the idea of selling December Corn straddles with downside breakeven coverage. One example was selling the Dec ’20 Corn 330 straddle (selling both a call and a put to collect premium) and buying the 300 put all as one position. The entry target would be to collect roughly 30 cents on the trade, including buying the $3 put. We wanted to put this strategy in writing for those of you that digest information better from reading it. For this weeks video, click here https://attendee.gotowebinar.com/recording/1724121502160731151
Selling the Dec ’20 Corn 330 straddle for 30 cents on its own would give us a $3.60 upside breakeven ($3.30 plus the 30 cents collected) while the downside breakeven would be $3.00 ($3.30 minus the 30 cents collected).
When we own the $3 put in conjunction with the straddle, it will ensure that the downside breakeven is covered. Therefore, if corn is below $3, the downside breakeven of the straddle will be protected by the $3 put and there is no risk of losing money on the way down (with the exception of the fees to do the transactions). The only risk of losing money on the position would be if the December futures are above $3.60 at option expiration on November 20. If it is, we would be net short Dec ‘20 Corn at $3.60 which we could then a) use as a sale for the current marketing year or b) roll to a future year’s production. For example, if short Dec’20 at $3.60, we will likely have Dec ’21 near $3.90 which could then be rolled to July ’22 at 20-30 cents of carry giving us $4.10-$4.20 July ‘22.
At expiration, the closer to $3.30, the better. On option expiration day, our profit would be the 30 cents we collected minus the difference between $3.30 and the futures price on expiration day.
For example, at $3.17, the gross profit is 30-13, or 17 cents. At 3.46 the profit is 30-16, or 14 cents.
Call us with questions.
Partner – AgMarket.Net
Farm Division of John Stewart & Associates
112 S Wool St
Barrington, IL 60010
ADMIS Comments: Overnight trade has SRW unchanged, HRW unchanged; HRS Wheat up 2 cents, Corn is down 2 cents; Soybeans down 5, Soymeal down $1.50, and Soyoil down 5 points.
Chinese Ag futures (Sep) settled down 47 yuan, down 3 in Corn, up 31 in Soymeal, down 32 in Soyoil, and down 58 in Palm Oil.
Malaysian palm oil prices were up 3 ringgit at 2,666 (basis October) at midsession still supported on supply concerns.
U.S. Weather Forecast
A majority of the Corn Belt will receive meaningful moisture in the first week of the outlook that will support the needs of crops; though, there will continue to be some pockets that are too dry; last evening’s GFS model run was wetter in the far southwestern Corn Belt Jul. 30-Aug. 1 in areas such as eastern Kansas and eastern Nebraska and down into the Delta
Last evening’s GFS model was also wetter in the southwestern Corn Belt Aug. 2 – 4 and western Tennessee as well.
The 11 to 16 day forecast has the ridging in the 6 to 10 day outlook breaking down and allowing temps to cool down to average to below with close to average rainfall.
The player sheet had funds net sellers of 10,000 contracts of SRW Wheat; net sold 13,000 Corn; bought 6,000 Soybeans; net bought 2,000 lots of soymeal, and; bought 1,000 Soyoil.
We estimate Managed Money net short 15,000 contracts of SRW Wheat; short 123,000 Corn; net long 91,000 Soybeans; net short 28,000 lots of Soymeal, and; long 24,000 Soyoil.
Preliminary Open Interest saw SRW Wheat futures down roughly 2,200 contracts; HRW Wheat up 3,800; Corn up 8,700; Soybeans up 6,800 contracts; Soymeal down 1,900 lots, and; Soyoil down 1,700.
There were changes in registrations (Rice down 39)—Registrations total 95 contracts for SRW Wheat; ZERO Oats; Corn ZERO; Soybeans ZERO; Soyoil 2,956 lots; Soymeal 511; Rice 174; HRW Wheat 47, and; HRS 1,387.
Tender Activity—Egypt seeks optional-origin wheat—Ethiopia postpones tender for 400,000t optional-origin wheat—S. Korea seeks 207,000t optional-origin corn, 70,000t feed wheat—Iran bought 200,000t optional-origin corn, 350,000t soymeal—
POLL-U.S. corn seen rated 68% good-excellent, soybeans 67%
All figures in percent:
|Category||Analyst average||Analyst range||USDA last week|
|Winter wheat harvested||79||75-85||68|
|Spring wheat condition*||68||66-70||68|
U.S. Winter Wheat harvested was 74% (trade estimate was 79%) versus 68% last week, 66% a year ago, 75% average.
Spring Wheat was rated 68% good to excellent (trade estimate was 68%) versus 68% last week, and 76% a year ago; 25% fair (24% a week ago, 20% a year ago), and; 7% poor to very poor (8% last week, 4% a year ago).
Corn doughing was 9% versus 3% a week ago, 4% last year, and 7% average.
Corn was rated 69% good to excellent (trade estimate was 68%) versus 69% last week, and 57% a year ago; 23% fair (23% last week, 30% last year), 8% poor to very poor (8% last week, 13% last year).
U.S. Oats harvested was 20% versus 12% a week ago, 11% last year, and 19% average.
Oats were rated 61% good to excellent versus 61% last week and 64% a year ago; 29% fair (29% last week, 28% a year ago), and; 10% poor to very poor (10% last week, 8% a year ago).
U.S. Soybeans setting pods was 25% versus 11% a week ago, 6% last year, and 21% average.
U.S. Soybeans were rated 69% good to excellent (trade estimate was 67%) versus 68% a week ago, and 54% a year ago; 24% fair (25% last week, 34% a year ago), and; 7% poor to very poor (7% last week, 12% a year ago).
Last week’s favorable weather led several U.S. Crop Watch growers to increase corn condition and yield scores, bringing those eight-field averages to the highest levels for any week since Crop Watch began in 2018; the soybean scores are also among the highest, but much of the corn could get by with one or two more good rains, while the soybeans will still depend on good moisture through next month.
EAST CENTRAL NORTH DAKOTA
The North Dakota grower increased corn condition to 3.5 from last week’s 3, and soybean condition remains at 3. The area has received plenty of rain and the conditions have been great for growing corn. The accumulated heat units are well ahead of last year’s slow pace, and the corn should put out tassels by next week.
The producer keeps corn yield at 2.5 noting potential upside, but soybean yield is reduced to 2.5 from 3 after severe storms caused wind damage in the field on Friday. The North Dakota fields were not fully planted, and yield is based only off harvested acres. If the eight-field averages were weighted, North Dakota would have a smaller contribution.
Both corn and soybean conditions remain at 4.75, and the producer increased corn yield potential a quarter-point to 4.75. Soybean yield stays at 4.5. Weather was ideal for growth last week and the fields picked up more than an inch (25 mm) of rain on Saturday. Corn pollination is in full swing and the soybeans are about 10 days ahead of normal. Pods are forming and gaining size on the lower portion of the soybean plants. More favorable weather is expected in the week ahead.
The Nebraska producer left corn condition and yield potential unchanged at 4.25 but reduced both soybean scores by a quarter-point to 4. Corn is in full pollination and is hanging on despite no rain last week. The corn is irrigated and the soybeans are dryland, and bug populations have surged in the soybeans. Topsoil is very dry and the grower was running irrigation pivots this weekend.
The Kansas fields received 3 inches (75 mm) of rain last week, and the grower increased both corn condition and yield to 4 from 3.5. Soybean scores stay at 3.5. The crops have generally been able to avoid long stretches of extreme heat, which is a high risk in Kansas. Corn in the area is looking the best it has in at least a few years.
EAST CENTRAL IOWA
The Iowa grower increased corn condition and yield to 4.5 from 4 last week as the crop recovered very quickly from the damaging wind event. It was a great week for corn pollination, and the moisture levels are generally good. Both soybean scores stay at 5. Pods are forming on the soybean plants. More favorable weather is expected this week.
Conditions remain at 5 for both fields and the grower increased both corn and soybean yield to 5 from 4.5. The crops received 2.3 inches (58 mm) of rain on Sunday, and the possibility exists for a big corn yield with just one or two more good rains. The soybeans are setting pods. The Illinois field was the first Crop Watch soybean field to be planted, on April 19.
The Indiana producer bumped corn condition by a quarter-point to 4.5, and corn yield remains at 4.5. Soybean scores were unchanged with condition at 3.75 and yield at 3.5. The fields received half an inch of rain Sunday, and the corn is either finished or nearly finished with pollination. The producer would be confident in corn potential with just one or two more rains, but beans will continue to need moisture. Rainfall has been just enough in the area though it could use more, and the producer says it is “dry enough to stay nervous” but there is “enough moisture (for growers) to sleep.”
Corn and soybean conditions in Ohio remain at 4 this week, and yield potential is unchanged at 4.5 on corn and 4 on soybeans. Corn has not yet entered pollination. Similar to the Indiana fields, the Ohio crops are getting just enough rain to prevent deterioration, but larger amounts will be needed soon. The fields received 0.8 inch on Sunday, which should hold conditions for at least three days. There are more rain chances in this week’s forecast.
Trade estimates for USDA grain export inspections – Reuters News
U.S. weekly grain/soybean export inspections – USDA – Reuters News
WEEK ENDED: 07/16/2020 07/09/2020 07/09/2020 07/18/2019
Prelim. Revised Previous
– Wheat 500,607 659,727 624,211 447,288
– Oats 100 0 0 0
– Barley 49 0 0 0
– Corn 1,149,353 917,968 902,623 438,544
– Sorghum 71,965 71,265 71,265 61,344
– Soybeans 452,811 483,331 483,331 563,042
MARKETING YEAR-TO-DATE INSPECTIONS
Current Year Last Year
– Wheat 3,575,182 3,408,348
– Oats 500 299
– Barley 416 2,007
– Corn 36,348,023 43,610,204
– Sorghum 4,211,400 1,831,602
– Soybeans 38,315,021 39,282,631
Yesterday’s U.S. weekly export inspections had
—Wheat exports running up 5% ahead of a year ago (11% behind last week) with the USDA currently forecasting a 2% decrease on the year
—Corn 17% behind a year ago (19% last week) with the USDA down 14% for the season
—Soybeans are down 2% on the year (down 1% last week) with the USDA having a 6% decrease forecasted on the year
Wire story reports China is actively booking this year’s U.S. soybean crop and has made a historic string of purchases this month, but soybean futures remain near the lowest levels in recent memory for the time of year; Chicago soybean futures for November delivery finished at $9.00 per bushel on Monday, the contract’s fourth settle at or above $9 since early March; that is within a similar realm to mid-July prices in the past two years, but U.S. supply outlooks are much lighter by comparison; the soybean market appears either skeptical that Chinese interest in the U.S. oilseed will continue, or there are ideas that the U.S. soybean harvest could be larger than is currently predicted, or a combination of both.
China plans to sell rice and wheat from state reserves to animal feed producers who are struggling with high corn prices, which have soared more than 20% in some areas this year amid tightening supplies; Beijing may offload about 10 million tons of rice in the first batch of sales; the government is doing this to check corn prices
A rally in China’s rapeseed oil futures is pushing its price spread with other edible oils to the widest in years, with lower imports of the oilseed from Canada and tightening supplies spurring trading interest and volumes; the spread between rapeseed oil on the Zhengzhou Commodity Exchange and soyoil on the Dalian Commodity Exchange widened to as much as 2,500 yuan ($357.50) per ton on Tuesday, the greatest it’s been since 2012.
China will sell 10,000 tons of frozen pork from its state reserves on July 23, said the China Merchandise Reserve Management Center; China has already sold about 420,000 tons of pork from reserves so far this year to tame pork prices that have soared after the deadly African swine fever decimated the domestic pig herd.
The wholesale prices of China’s agricultural products edged up Monday, according to the Ministry of Agriculture and Rural Affairs; the latest China agricultural product wholesale price index came in at 116.57, up 0.44 points from Friday; the average wholesale price of pork, a staple meat in China, went up 0.6 percent to 48.83 yuan (about 6.98 U.S. dollars) per kg, while the price of eggs rose 3.3 percent to 6.87 yuan per kg.
Cattalini Terminais Marítimos, a port terminal operator which handles almost 70% of Brazil’s soyoil exports at Paranaguá port, predicts shipments of that commodity will rise by around 26% this year after a drought reduced the levels of Argentina’s Paraná river, a main thoroughfare; China and India are the main destinations of Brazil’s soyoil; the coronavirus outbreak in Brazil, where COVID-19 infections and deaths are the second highest in the world, also had a negative impact on domestic diesel demand, thus increasing the volumes of soyoil that Brazil can sell on export markets; soyoil is the main ingredient of biodiesel, which is blended into diesel oil; currently, the minimum biodiesel ontent in diesel oil is 12%.
Russian wheat export prices rose for the second consecutive week last week due to the slow pace of harvesting, which started later than a year ago, and weak supply from farmers in southern regions; Russian wheat with 12.5% protein loaded from Black Sea ports was at $208.5 a ton free on board (FOB) at the end of last week, up $6.5 from the previous week, SovEcon agriculture consultancy said; another consultancy, IKAR, pegged wheat for supply in August at $209 a ton, up $4.
Ukraine’s DPZKU exported 73,680 tons of wheat flour in the 2019/20 season, the state grain firm said, up 42% from 51,900 tons in the previous season; that accounted for 22% of Ukraine’s total exports of 334,120 tons for the season, which runs from July to June.
Ukraine’s seaport grain exports fell to 1.95 million tons in June, the last month of the 2019/20 season, from 3.68 million tons in May due to lower shipments of wheat and corn, analyst APK-Inform said; exports of wheat fell to 214,000 tons, while corn shipments declined to 1.54 million tons
Following a multiyear drought in eastern Australia, much-improved seasonal conditions and rainfall in the first half of 2020 have set the scene for a sharp increase in wheat production, the U.S. Department of Agriculture says; its local office forecasts wheat production at 27 million metric tons in the 2020-21 marketing year, a 78% increase from 2019-20 as a result of higher acreage and improved yields
It expects wheat exports to rise to 17.5 million tons in 2020-21 from 9.2 metric tons in 2019-20
ASX Eastern wheat is trading A$4.50 higher at A$337.50 a tonBack