JPMorgan Chase & Co. electronic trading

JPMorgan Chase & Co. is pulling its agricultural commodity brokers from the options floor in Chicago amid a shift to electronic trading. The bank will no longer have a floor presence in agricultural options including corn, soybeans and wheat, the company confirmed. JPMorgan has six brokers trading farm-commodity options on the floor of the Chicago Board of Trade, according to people familiar with the matter, who asked not to be identified because they aren’t allowed to speak to the media. The decision reflects the continued move to electronic trading. CME Group Inc., the world’s largest derivatives exchange, announced in 2015 it was closing floor trading for most futures contracts in Chicago and New York as open outcry in futures trading handled by the bourse had fallen to just 1 percent of volume. In 2016, the company shut its New York options pits. JPMorgan will continue to broker agricultural commodity options electronically. The bank’s moved fueled speculation among some traders that CME may be considering ending trading of options on the Chicago floor. CME said the bourse has no plans to close the trading floor at this time.

Iowa livestock farm fined

A livestock farm in southeastern Iowa has been fined $50,000 after the owner and an employee plead guilty to charges of violating the Clean Water Act while discharging manure. In a press release from the Department of Justice, it is outlined that Scott Allen Etcher, age 55, and Benjamin Allen McFarland, age 29, from Etcher Family Farms of New London, were sentenced following guilty pleas to Discharge of a Pollutant. The sentencing occurred on Feb. 26, after both Etcher and McFarland had pleaded guilty on Oct. 25, 2018, to criminal violations of the Clean Water Act. The guilty plea determined that on or around July 22, 2015, agricultural waste pollutants were negligently discharged. Benjamin McFarland, an employee of the farm, had knowingly applied liquid manure from the concentration animal feeding operation industry (CAFO) via an umbilical discharge hose onto nearby farm land. The liquid manure then runoff directly into an unnamed tributary to Big Creek. The application of the manure, which was deemed as a “pollutant” by the court, was an unpermitted discharge and had been done under the supervision of the owner and operator of Etcher Family Farms, Scott Etcher.

Average daily volume contracts up for CME

CME Group, the world’s leading and most diverse derivatives marketplace, reached average daily volume (ADV) of 19 million contracts in February 2019. This is up 7 percent from January 2019, but down from a record 27.3 million contracts per day in February 2018. Open interest (OI) at the end of February was 126 million contracts, up 3 percent from January 2019, but down 3 percent from February 2018. Agricultural volume averaged 1.7 million contracts per day in February 2019, down 13 percent from February 2018.

Corn analysis

Corn closed the week $.08 lower. Last week, private exporters announced sale of 100,500 mts of U.S. corn to Columbia and corrected a previous sale of 133,000 mts of U.S. corn to optional origin sale.

U.S. corn export sales were 38.2 million bushels and solidly lower compared to the previous week’s 48.8 million bushels and were substantially below last year’s same-week sales of 73.1 million bushels. Corn sales will need to average roughly 29.4 million bushels/week during March-August in order to reach the USDA’s export projection, which would be exactly the same as last year’s sales from this point forward.

In the monthly supply/demand report; the USDA raised 2018/19 carryout by 100 million bushels thanks to a reduction of 75 mb for demand and ethanol use was reduced by 25 mb.

Exports of 2.375 billion bushels and now reflects a 63 million bushel decline from last year’s 2.438 billion bushels. The USDA left corn production unchanged from last month for Brazil at 94.5 mmts and 46.0 mmts for Argentina. World ending stocks are forecast at 308.5 mmts. At the end of February, spring crop insurance prices were set. This year’s price for corn is $4.00 versus $3.96 last year. A study by Merrill Crowley suggests that since 2013; December corn has exceeded the spring crop insurance by an average of $.37.

Strategy and outlook

Producers should look to sell the carry for spring or summer months and use options to re-own and manage risk. Don’t store unpriced crop.

Soybeans analysis

Soybeans closed the week $.15 1/2 lower. Last week, private exporters announced sale of 644,000 mts soybeans to China.

U.S. soybean sales, for the week ended 2/28/19, were only 11.4 million bushels, the third lowest weekly total this marketing year. This was down sharply from the previous week’s 80.7 million bushels and well below last year’s same-week sales of 92.2 million bushels.

Soybeans will need to average an estimated 18.0 million bushels/week to be sold through the end of August versus last year’s 15.4 million/week from this point forward in order to reach the USDA’s projection. In the monthly supply/demand report; the USDA took a cautious, wait and see approach as they left the export projection unchanged at 1.875 bb. Until their a clear sign in further developments with China, the USDA is justified in being cautious. USDA did increase 2018/19 crush by 10 mb to 2.100 bb. Without any other adjustments, 2018/19 US soybean ending stocks were adjust to 900 mb, which is still more than double last year’s stocks of 438 mb. Depending upon what happens with China, U.S. stocks are likely to either increase to 1.00 bb or drop to 800 mb before the end of the marketing year. World ending stocks are estimated 107.2 mts, up from last month’s estimate of 106.7 mts.

USDA lowered Brazil’s soybean crop to 116.5 mts versus 117.0 mts last month and Argentina’s crop was unchanged at 55.0 mts. At the end of February, spring crop insurance prices were set. This year’s price is $9.54 for soybeans vs. $10.16 last year. A study by Merrill Crowley suggests November soybeans have exceeded the spring crop insurance price by an average of $1.19.

Strategy and outlook

Producers should look to sell the carry for spring or summer months and use options to re-own and manage risk. Don’t store unpriced crops.

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.