USDA Crop Report - Nov. 12

[charliep]

Just a note that today was a USDA crop production day. Numbers can be found at:

http://jan.mannlib.cornell.edu/reports/waobr/wasde-bb/2002/

Major increases in Chinese wheat inventory. Likely mostly lower quality. Impact on market marginal.

Highlights tightening world vegoil supplies. Interesting times ahead.

Volatile futures markets today but only marginally related to USDA report. Anyone speculating on this market had better have a high tolerance for stress/a large bank account with enough money to make margin calls. Not fun.

[charliep]

Just a note to have a look at the impact of the current dive in prices on effectivess of PPO contracts if you have a basis contract.

The converted MGE Dec. futures price was $243.65/t. Assuming you locked in the best basis the CWB offered (May - $24.72 over) and average Alberta deductions ($44.58/t), the price you would recieve today would be $223.79/t or $6.09 for 1CWRS 13.5 ptn. Not suggesting for a minute that this is where the total payments will end up or this is a good time to price out but rather a reality check on the market.

Anyone with a producer pricing option basis under the Dec. that hasn't been priced out should be looking for an exit strategy. One is to roll the basis forward (check costs). The second is to price out and replace with a long futures position.

Others comments.

[rosco]

Charlie,
I had been thinking about doing an EPO with a few tonne so I decided to check the CWB site for pricing history to try and get an idea of trends. Seems like the 5th was the time to lock in. The discount has almost doubled from 30 to 56 cents a bushel. Is the USDA report solely to blame or is this a sign of things to come?

[charliep]

Rosco

I am not so sure either. I am optimistic for better prices but the market is swinging wildly with a lot of little speculators who are long wheat futures getting hammered. When the market has cleaned all these guys out by inflicting the maximum amount of pain they can take, futures prices will head higher.

On the EPO side, they are valued like a put. The reason the EPO premium is so high today is because it is like buying an in the money put.