October 25, 2014

Huge Option Open Interest at $10.00

October 24th, 2014

Good Morning! Paul Georgy with the early morning commentary for October 24, 2014 at 5:30 am.

Traders Focus: Weekend hedge pressure, cattle on feed report, and November option expiration.

Grain markets are higher as funds and spec exit short positions ahead of option expiration.

The November CBOT options expire today which could cause more fireworks. There is almost 33,000 open interest at the 10.00 strike and 20,000 open interest in the 9.80 strike in November soybeans. Those who were expecting 9.80 to 10.00 calls to expire worthless are not so sure and scrambling to save their positions. This is creating short option covering and last minute repositioning for the option holders. We would also expect some pre-hedging late in the session today.

Domestic meal basis is a key driver behind the current rally in soybeans and is not showing signs of easing with eastern cornbelt basis levels $45 to $50 over Dec futures.

A USDA official said the surprisingly large weekly export sales of soybeans were correct, but a sizeable share should have been posted on daily reports.

Major weather pattern change is taking place across Latin America that will produce an abundance of rainfall for northern and western Brazil. The main soybean producing state of Mato Grosso is forecasted to see up to 4 inches of rain over the next 2 weeks. However it may come too late for the early plant crop and will require some replanting.

Mexico’s corn crop is being upgraded from 22.5 mmt to 23.0 mmt due to favorable weather and an increase in planted acres.

The Brazilian Presidential run-off is this weekend and the Real is weak, touching 2.5 Reals per Dollar. If Brazilian currency continues to weaken it could provide a negative issue for the soy complex.

On next Monday’s Report we expect soy harvest to approach 70% and corn harvest to hit 40-45%.

Daily price limits for most Chicago Board of Trade grain and oilseed futures will narrow starting in November following a semi-annual review, the CME Group said on Tuesday. Under new rules announced in March, the CBOT resets daily limits for grains in May and November of each year. The new limits will go into effect on Sunday, Nov. 2, for the Nov. 3 trade date. For corn, the daily limit will move to 25 cents per bushel, from the current limit of 35 cents. For soybeans, the daily limit will narrow to 70 cents per bushel, from the current limit of $1. The limit for CBOT wheat will narrow to 35 cents, from the current 45 cents, and the limit for K.C. hard red winter wheat will narrow to 40 cents, from the current 50 cents.

Update – Morning Coffee Commentary:

New trading hours for the livestock begin on Monday October 27. On Mondays, the market will open at 9:05 a.m. CT and close at 4:00 p.m. CT. Tuesday through Thursday the markets will trade between 8:00 a.m. CT and 4:00 p.m. CT. The trading day is shorter on Fridays, opening at 8:00 a.m. CT and closing at 1:55 p.m. CT. Currently, electronic trading takes a one hour break from 4 p.m. CT to 5 p.m. CT Monday through Thursday. The market closes early (1:55 p.m. CT) on Friday and opens late (9:05 a.m. CT) on Monday. Open-outcry trading hours for livestock futures and options remain unchanged.

Cattle on Feed Estimates for Friday’s Report: COF: 99.7%, Placed: 101.4%, Marketed: 99.2%.

Feedlots sold cattle for 168 in NE and 166 in KS this would be 1 to 2 higher than last week. Supplies remain in strong hands as feeding cattle heavier is more efficient than replacing them. Packers need numbers to meet demand although margins are negative and beef values are reluctant to work higher due to competitive meats. Choice is down 1.57 and select is down 1.53. The CME Feeder Index is 239.34.

Hog markets continue to be pressured by ideas supplies are increasing. Pork cutout values are down .62.

Markets as of 5:30 AM CDT                                                                    

  • Dec Corn   +3 1/2    
  • Nov Beans   6 3/4
  • Dec Wheat   +8 1/4
  • Dec Cattle  +.30
  • Dec Hogs    -.30
  • Dec Dlr     -.03
  • Dec S&P   -7.75
  • Dec Crude   -.77
  • Dec Gold   +3.10

Technical Chart of the Day

daily chart

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    Allendale Advisory Contributor:


    Paul Georgy

    Paul is one of the founders of Allendale. He is very active in the futures industry and currently serves on the Board of Directors of the National Futures Association.