Highlights
A Russian missile hit the port city of Mykolaiv. Ukraine initially said there was slight damaged a Cargill Grain facility. Pro-Ukrainian press is making it sound like we will all starve to death in a matter of months. We are guessing the high for the day was made last evening.
Belarus stated this morning that the rail transportation of Ukrainian grain through Belarus is not going to happen given the EU sanctions Belarus.
The 6 to 10 day and the 8 to 14 day forecasts continue to predict the Corn Belt will generally have normal to above normal rainfall with normal to below normal temperatures. Fourteen days from now will be June 20th. That means the Corn Belt will have near ideal weather the first 20 days of June.
Normal weather produces trend yields, which means 181 bu. this year. Since we have never produced more than 177 bushel yields and the crop was planted a little late, let’s say normal weather produces 178 bushels.
That means sub $5 corn. Impossible you say? The world carryout for this year and last year in terms of days’ use are identical at 94 days of supply. The domestic carryover for this year is 34 days, one day less than last year’s carryout. The low last fall on December corn $4.97.
We have had significantly better than normal weather this spring. Yesterday morning, we sent you the latest ENSO chart. Take a closer look at it.
Note the Pacific Equatorial temperature has been rising since the 20th of March. That indicated back in late March cooler and wetter than normal weather would begin in the Corn Belt about 30 days later. Furthermore, as long as that water temperature continues to warm, the Corn Belt will continue to be wetter and cooler than normal. That is the typical El Niño effect.
If that temperature moves to more than a half degree above normal, that is an “official” El Niño episode. Every record corn yield the last 40 years has come during an El Niño growing season.
In an El Niño growing season, the biggest threat to the corn crop is not getting it planted. We got enough corn planted to make a great crop with normal to better than normal weather.
This ENSO chart was issued May 30th and it predicts weather 30 to 45 or even 60 days out, we can expect above normal rainfall and below normal temperatures through July 10th and probably July 15th. That will make a record corn yield by 4 to 6 bushels per acre.
Note that the big spec funds and index funds both reduced their net long corn positions two consecutive weeks. Corn has not made a new contract high since May 16th. There is no more talk of drought in the Corn Belt. There is more talk of the corn and wheat in Ukraine being made available.
Lance recommended pricing corn May 12th. Roger recommended the next morning you sell all the corn your nerves could stand in the $7.50 area. The contract high was made May 16th at $7.66. December corn traded down to $6.82 on June first.
Most of you like flexibility to pick the location with the firmest basis when you deliver corn and many of you cannot bring yourself to do a HTA on 100% of your crop even though most of you have not asked your merchandiser if he would allow you to postpone delivery one year if you can up short on bushels.
Consider this marketing tool in your own options account:
When December corn gets about as high as you think it will this month, let’s say that is $7.20, you will be able to buy $7.20 put for about 58 cents. That keeps your delivery choices 100% open and locks in a floor price of $6.62 +/- basis.
However, if you write (sell before you buy) a $7.20 call at the same time, your income would also be right at 58 cents. That means your floor price is $7.20 +/- basis.
In June, every strike price at-the-money (strike price closest to the current futures price) calls and puts will be in the 58 cent range. Right now, with December corn at $7.01, the $7.00 call is 59 cents and the $7.00 put is at 58 cents.
Another possibility is to buy and an at-the-money put for about 58 cents and write (sell before you buy) a call 30 cents out-of-the-money, which will be about 42 cents here in June. The income from the call would cover 42 cents of cost of the put, but you would have to reduce your net HTA price from the put by 16 cents, so a $7.20 put would net a HTA of $7.04.
Or you could buy an out-of-the-money put and write an at the money call for 58 cents. A put 30 cents out-of-the-money will cost about 40 cents. Since the call was written (sold before being bought) for 18 cents more than the cost of the put. That 18 cents would be added to the HTA price locked in by the put.
The combinations are endless. If you want to discuss this strategy, give our “full service” consultant, Lance Donlon, a call at 563 880 5526. You must realize he cannot talk to everybody at once and he will take care of his full service clients first
Market Data
This morning:
Crude oil is at $119.39, up $0.52
The dollar index is at 102.13, down 0.01
July palm oil is at 6,675 MYR, unchanged. 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 $118.47, up $0.57 per cwt. The contract high was made May, 17th at $133.79 per cwt. Cotton competes with soybeans and corn for acres.
July natural gas is at $8.816, up 0.293. The contract high was made May, 26th at $9.447. Natural gas is the primary cost to manufacture nitrogen fertilizer.
July ULSD is at $4.3324 per gallon, up 0.0521. The contract high was made today at $4.3650. ULSD stands for Ultra Low Sulfur Diesel.
Rain Days Update
The Western Corn Belt has 5 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