Posted on 05/30/2013 4:59:43 AM PDT by MeneMeneTekelUpharsin
Traders find shelter in options as continued drought and heat ravage Midwest crops.
--Worry persists about the impact of expensive feed on packager costs
NEW YORK--With Midwest drought conditions worsening, investors feeling the heat are seeking protection from rising corn prices.
Buying bearish options on Tyson Foods Inc. (TSN) and Smithfield Foods Inc. (SFD)--whose animals feast on corn--was one way of doing so.
Traders snapped up protective put options on packaged-meat producers that are especially sensitive to the price of corn feed. Activity suggests traders fear continued weakness in the shares as the corn-crop situation becomes more precarious.
One trader in poultry packager Tyson Foods' options picked up about 1,000 August $16 put options for 70 cents a share in a trade WhatsTrading.com analyst Frederic Ruffy called a hedge against further losses by the downtrodden shares.
"The pressure of high feed costs is putting pressure on the poultry producers," Mr. Ruffy said. The Tyson Foods puts grant the buyer the right to sell shares at $16 over the next five weeks. Though shares were below that mark Monday afternoon, after factoring in the price paid for the position, the options protect against a stock-price drop of more than 2.1% over that period.
Tyson Foods shares slid 52 cents, or 3.2%, to $15.63 Monday, extending a 10-session losing streak that has shaved 17% off the stock's value. Meanwhile, another trader bought about 2,000 August $18 put options on Smithfield Foods, a producer of packaged pork products, for 75 cents a share in a similar hedge. This protected the investor against a drop of 5.2% from Monday's closing price.
Smithfield shares dropped 71 cents, or 3.8%, to $18.19 Monday, off 16% since the end of June. "The reason why all these puts are being bought is because feed is primarily made of corn," said Mark Sebastian, chief operating officer at Chicago-based consulting firm OptionPit. "It is going to have a big negative effect on costs and crush [company] earnings." U.S. corn futures traded sharply higher Monday amid continued worries about widespread drought shrinking the size of the U.S. crop. Prices on futures for September delivery settled up 4.9% at $7.77 a bushel, adding 41% over the past three weeks.
High temperatures and drought are expected to continue across the Midwest, from Kansas and Nebraska to Illinois and Indiana, and no significant rain is expected this week. "It's toast. Everything is toast," Mr. Sebastian said of the corn and soy crops. "There should be protective put buying. The packaged-food producers are going to get crushed."
The U.S. Department of Agriculture reported at 4 p.m. EDT Monday that the situation has continued to deteriorate, with the percentage of the corn crop deemed to be in "good" or "excellent" condition dropping to 31%, which is down from 63% a month ago. Tyson Food options have seen elevated volume for six of the past nine sessions, with activity reaching more than four times the 22-day moving average Monday. Smithfield activity hasn't been as intense, seeing elevated volume just three times in the past nine sessions. Trading in Smithfield options jumped to 3.7 times the average Monday.
Chicken processor and distributer Pilgrim's Pride Corp. (PPC) options were also active...
Rivers are flooding, the targeted drought states are now drowning in rain. These options are a suckers bet.
At the very same time we were having a Great Drought that penetrated every corner of the nation, and devastated the CORN BELT. I suppose the hogs could have turned to grass but they didn’t eh! What you need to do is check out DROUGHT MONITOR at http://droughtmonitor.unl.edu/ ~ BTW, China and much of Asia’s growing regions ALSO had a gigantic drought last year. Watching the rainfall in the US, storms in Nebraska and Kansas the last couple of days may well have chipped away at more of the drought zone.
Second, it is not "manipulation" to make an investment based on research into the fundamental conditions of an industry.
This is appallingly weak "analysis."
What drought?
The midwest has had a ton of rain.
Even in the 2012 drought year, the US corn crop easily cracked the top ten corn crops ever.
Pigs can’t digest grass well. They are not ruminants.
It’s the end of May and corn is down nearly $3 from it’s high, with an entire summer left before the next harvest.
However, the price of meat animals is way up and holding steady. We all know the price of packaged meat is way high.
Some friends who used to raise a couple of calves every 2 years, one for themselves and one to sell, butchered their last 2 in March and said they can’t afford to continue because the price of feed is too high. The wife loves chickens and will continue to raise a flock each summer, but they are free range.
As for drought, it has been too wet to plow, after a record cold Spring. I had some indeterminate Super Sauce romas started that will go into 10-gallon grow bags next week. All my tomatoes will be containerized for the 2nd summer. Just no way to till the garden and the rain won’t quit. I think local veggies will be expensive this summer. If frost is even at a normal time, crops will be affected and if we have early frost, it could be a disaster.
Ever try rooting up rhyzomes? Bet your hogs have!
Corn stock carryover is higher than anyone imagined.
Corn planting is around 90% complete on the most acres since the 1930s.
Real things hold value against an inflated dollar, so it’s no wonder gasoline and beef prices are record highs.
I grew up in farm country. I’m used to hearing about multiple disasters every year until the record crop is brought in.
We live next door to a major desert complex and given the right conditions (cold dry air for an extended period) much of what is now the United States can get pretty nasty.
http://www.indexmundi.com/agriculture/?country=us&commodity=corn&graph=production
http://www.agweb.com/corn_planting_map.aspx
http://www.agrimoney.com/news/world-corn-stocks-to-rebound-lifted-by-us-revival—5824.html
Your second URL is about planting, not about harvesting. In addition, the system compares this year, 2013, against last year, 2012, which suffered a Great Drought!
We also have improved varieties that take less time to grow and produce more. That allows extension of the two crop system further North, and in cases, even the three crop system further North into Southern Illinois and Indiana ~ provided they can get everything planted on time.
I hope that eventually they will have created a banana that can be grown in Northern Canada ~ in the meantime, 60 day corn is a reality as a source of good sweet corn throughout many Northern regions around the world.
Fits the template. Convince 51% that Capitalism has FAILED and MUST be REPLACED.
What is your question exactly?
Yeah, I have lived with those grumpy farmers for over 40 years. But, some years are not good and too many farmers today are carrying a load of debt. Not to mention diesel and fertilizer costs.
We have several *small* organic veggie producers in my area. Some had just managed a portion of their transplanting this week and we had a lot of rain and damaging winds yesterday, with more on the way. Some will be tilling their plantings in and trying to replant. Last year, many lost yield to drought.
Row crops have been engineered for various negative conditions, but vegetables are still a hand-production operation of tender crops. Especially with organics, where the producers don’t have the luxury of hybrids.
I just like growing tomatoes and always start 3x the number I end up with. I give away a lot of them. Normally, they are in the ground Memorial Day. This year, I am just so thankful for my little plastic greenhouse, which survived last night’s straight line winds. I tend towards bush varieties, miniatures and short season hybrids, but this year, I started hybrid romas that are supposed to produce 2# fruit and are indeterminate and a new dwarf variety everyone has been waiting to be available for a couple of years. Very expensive seed, as first year offerings, so I am glad I will be able to somewhat control their environment. I’m glad it’s a hobby though, and not a business.
Rule of thumb for a successful civilization: DON’T BURN YOUR FOOD!
LOL! Yes they have! They can tear up a field in nothing flat.
...but when the record crop is harvested, farmers complain about the low commodity prices.
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