Ukraine situation and other market factors to watch

By Jon Scheve, Superior Feed Ingredients, LLC

Four ships loaded with wheat and corn left Ukraine on Friday of this past week. Another four loaded over the weekend. However, it will still take another 500 to 1,000 ships pending the average size of each vessel to move the remaining grain still left in storage there. The deal negotiated 3 weeks ago set a goal of loading three ships per day out of Black Sea ports, with a renewal of the agreement every 120 days. While the deal has potential, logistically it is not a guarantee all the old crop in storage will be moved in time to provide enough room for the new crop being harvested.

It is still uncertain how many acres will be planted there this fall and next spring. Insurance costs to move grain out of Ukraine by ship has increased by 20 times, which will be passed down to the producer in that country. Plus, moving freight through a war zone costs more too, which will also be passed on to the Ukrainian farmer. This means final cash values could be below production costs for producers, and lead to fewer acres potentially being planted this fall or next spring.

Weather

For the last 5 weeks, weather predictions on Fridays showed widespread hot and dry weather; however, by Monday morning forecasts changed to more precipitation and cooler temperatures each week. While most corn has passed the crucial time when moisture is needed most, final kernel fill will be determined in the next week. It is now the crucial moisture time period for beans. Moving forward, weather can still impact corn some, but beans will be the most affected.

USDA report

The USDA’s first look at corn yields using satellite data is Friday, and national yield predictions are wide-ranging from as low as 170 to as high as 178. Based on precipitation maps, corn yields might be closer to the 176 to 177 range. However, if hot and dry weather persist through mid-August, the national corn yield could pull back in the September USDA report after the first samples are officially tested and as harvest reaches I-70 giving the market more information to digest.

2022 crop position

As I shared in past weeks, I had 30% of my 2022 crop sold with an average futures value of $6.40 during the run up at the beginning of the year. I then rolled 20% of the 2022 sales back to 2021, leaving me 10% of 2022 sold at a $6.40 average.

Market action

I was confident rolling these sales back in late June because on April 19 I had bought $6.80 puts for 40 cents on 70% of my anticipated 2022 production, represented by the yellow X below.

This meant I had a $6.40 guaranteed floor price on 70% of production. Including the 30% sold at $6.40 futures, I had 100% protection on my 2022 crop at $6.40. This was substantially higher than my breakeven for the year, and one of my highest guaranteed profit margins I have ever locked in at the start of planting.

After moving the 20% new crop sales back to old crop, I am left with 80% of my 2022 production protected with a guaranteed $6.40 floor. I am comfortable with the remaining 20% unprotected from the rolling of corn between crop years, because I have plenty of storage available to keep it in the bin until next summer while I wait for an opportunity.

With the price pull backs since early June, I’m glad I have a floor price on most of my 2022 crop. With hindsight, I may have wished I sold more corn at higher values. However, my strategy at the time allowed for unlimited upside potential on most of my production and a guaranteed profit if prices went down. When I placed the trades in early April there was a lot of concern around the potential planting pace in the U.S. as well as the war in Ukraine. If you also include the risk of dry summer weather due to La Niña conditions, upside price potential at the time looked potentially record breaking.

Even today, if the average national yield decreases or the situation in Ukraine changes, prices could still push to record breaking levels.

Please email jon@superiorfeed.com with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.

Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results.

Check Also

Basis vs. spread

By Jon Scheve, Superior Feed Ingredients, LLC Under the new export agreement for Ukraine, over …

Leave a Reply

Your email address will not be published.