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BRIAN HOOPS

By Staff | Apr 22, 2016

Closing New York

(From Rueters) – As declining open outcry options volume on CME Group’s New York trading floor now represents just 0.3 percent of the company’s overall energy and metals trading volumes, CME Group will close its New York trading floor at year-end, subject to CFTC review. All options products listed with and subject to the rules and regulations of NYMEX and COMEX will be available for trading on CME Globex, and for submission for clearing through CME ClearPort.

Government pie

(From Bloomberg) – The agriculture slump is getting so bad in the U.S. that farmers are about to get more government aid than at any time in the past decade, signaling the rising public cost of crop surpluses and cheap food. About $13.9 billion of net farm income this year will be federal payments, or about 25 percent of total income estimated at $54.8 billion, according to estimates by the U.S. Department of Agriculture. That’s the biggest payout and highest ratio since 2006, as programs authorized by Congress two years ago cost more than originally forecast. Still, farmers will earn less than half what they did just three years ago, before global surpluses sent commodity prices plunging. Corn and soybeans, the biggest U.S. crops, are so cheap farmers are expecting to lose money on every acre they plant this season.

Inputs vs profits

(From Bloomberg) – One of the biggest cost items for the farmer is inputs, like seed, chemical and fertilizer. Wells Fargo chief agricultural economist Michael Swanson said those buying decisions will have a significant impact on profitability. “Today’s farmer is about being a good purchasing manager and wringing out more performance from what they buy; it’s not about sitting on your tractor seat longer than your competition.”

With the right mindset, Swanson sees a bright future for farmers. “Farming has no problem finding demand and your job is to be the best at delivering that product to meet that demand.”

Cargill income

(From Bloomberg) – In it’s third quarter financial report, Cargill reports net income of $459 million. That’s up from $425 million one year ago. Quarterly sales declined 11 percent to just over $25 billion. A Cargill official said the company does not expect a near-term improvement in the market conditions for agriculture.

Safeguarding cash

(From Rueters) – CME Group Inc said it has received notice from the Federal Reserve that it is authorized to open an account at the U.S. central bank, allowing it to better safeguard cash deposited by its traders. Deposits in the account will be limited to clearing member proprietary margins, CME said in an advisory to its members. CME is working with the Chicago Fed to open the account and will let members know how much interest it will pay on balances “as we get closer to an account opening date.” CME, which operates one of the world’s biggest derivatives clearinghouses and several exchanges including the Chicago Mercantile Exchange, applied for access to Fed services in 2014, after its clearinghouse was designated a “systemically important” financial institution as part of the Dodd-Frank Wall Street reform act.

CORN ANALYSIS

Corn closed the week 15.5 cents higher. Last week, private exporters reported sales of 344,200 metric tons of corn to an unknown destination and 110,800 mt of corn to Japan.

Weekly export sales of corn showed a total of 49.1 million bushels (1.24 million metric tons) with 44.7 mb (1.135 mmt) for the 2015-2016 marketing year.

This was above the 17.5 mb (444,000 mt) needed to be on pace with USDA’s demand projection of 1.65 billion bushels.

The weekly crop progress report showed U.S. corn seedings at 4 percent complete nationwide, right at the five-year average, and above estimates of 2 percent complete.

Last year, the U.S. was only 1 percent complete.

Missouri is off to a great start with 24 percent of its corn planted versus only 3 percent done last year at this time.

The monthly supply/demand report was a non-event as the USDA increased corn-ending stocks by 25 mb as the government lowered feed and residual by 50 mb, but increased ethanol usage by 25 mb.

News that NOAA raised odds for a La Nina event this summer sent prices sharply higher on huge short-covering, but if an event were to occur, it would not be until July, leaving a lot of time until production would actually be effected. Producers should be aggressively seeding this year’s crop and with open weather, 2016 corn plantings could occur at a record pace.

Strategy and outlook: Producers should have used the latest rally to liquidate remaining inventory and begin to become defensive on new crop sales. Use options to manage price risk and summer volatility.

SOYBEANS ANALYSIS

Soybeans closed the week 37.25 cents higher.

Last week, private exporters reported 132,000 mt of beans to China.

Weekly export sales of soybeans showed a total of 17.1 mb (466,500 mt) with 16.8 mb (455,900 mt) for the 2015-2016 marketing year.

This was above the 3.4 mb (92,800 mt) needed to be on pace with USDA’s revised demand projection of 1.706 bb.

The NOPA report saw crush in March total 156.7 mb, close to trade expectations.

This was below last year’s 162.8 mb in March. The April supply/demand report held little surprises for the market as soybean ending stocks were lower by 15 mb to 445 mb as exports were increased by same amount to 1.705 bb.

While this is a comfortable supply cushion, the market has known about this for some time and looked past the numbers. As predicted after the March planting intentions report, a range has developed between $9.40 and $9.85 for November soybeans. The $9.85 was the high from last summer and will serve as resistance.

Producer should use rallies into this zone to make sales and manage their risk for the upcoming growing season. Soybean acreage is very likely to increase in the June report as producers will switch corn to soybean acres due to profitability and possibly weather, if corn plantings become delayed in late April.

Strategy and outlook: Producers should have used the latest rally to liquidate remaining inventory and begin to become defensive on new crop sales. Use options to manage price risk and summer volatility.

This material has been prepared by a sales or trading employee or agent of Midwest Market Solutions and is, or is in the nature of, a solicitation. This material is not a research report prepared by Midwest Market Solution’s Research Department. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Midwest Market Solutions believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such.

Brian Hoops can be reached at (605) 660-1155.

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