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Lower Corn Prices May Mean Fewer Corn Acres
DR. AARON SMITH
KNOXVILLE, TENN.
Soybeans and cotton were up; corn and wheat were down for the week. Estimated domestic corn and soybean acreage for 2014 received a minor twist last week when the Winter Wheat Seedings report indicated an estimated drop in winter wheat acreage of 1.2 million acres. This combined with approximately 1.4 million acres that were previously in CRP and the 8.3 million prevented planting acres (7-year average is 4.8 million acres) reported for 2013 could result in significantly higher available acreage for corn, soybeans, cotton, and other crops for 2014. How these acres will be allocated is debatable, however at present most believe that soybeans will experience the greatest acreage increase. Lower prices for corn could result in a pullback of some acreage this year but I don’t believe it will be substantial, unless something else changes.
Corn
March 2014 corn futures closed at $4.24 down 8 cents from last week with support at $4.19 and resistance at $4.30. Across Tennessee basis (cash price- nearby future price) strengthened in Upper-Middle and Lower-Middle Tennessee; while basis weakened in the Northwest, Northwest Barge Points, and Memphis. Overall basis for the week ranged between 1 under and 30 over the March futures contract. Corn net sales reported by exporters for the 2013/14 marketing year from January 3rd to 9th were 32.3 million bushels, primarily to Egypt, Japan, Mexico, Taiwan, and South Korea. Exports for the same time period were 26.6 million bushels primarily to Japan, Mexico, South Korea, Egypt, and Columbia. Corn export sales and commitments are 80 percent of the USDA estimated total annual exports for the 2013/14 marketing year (September 1 to August 31) compared to a 5-year average of 58 percent. Ethanol production for the week ending January 10th was 868,000 barrels per day down 51,000 barrels per day, the lowest weekly output reported since October 4, 2013. Ending ethanol stocks were 16.078 million barrels down 60,000 barrels. May 2014 corn futures were trading at $4.31 down 9 cents from last week. Mar/May and Mar/Sep future spreads were 7 cents and 19 cents.
September 2014 corn futures closed at $4.43 down 9 cents from last week with support at $4.39 and resistance at $4.48. This week September and December 2014 corn futures prices traded between $4.41 and $4.60/bu. Prices have begun to slide from the bump received from last Friday’s WASDE report look for prices to continue to be downward trending to flat. Having some 2014 production priced at his point in the year is strongly encouraged. Downside price protection could be obtained by purchasing a $4.50 September 2014 Put Option costing 35 cents establishing a $4.15 futures floor.
Soybeans
March 2014 soybean futures closed at $13.16 up 38 cents for the week with support at $12.99 and resistance at $13.38. Soybean to corn price ratio was 3.10 at the end of the week. For the week, soybean basis strengthened in all five regions. Basis ranged from 30 under to 80 over the March futures contract at elevators and barge points. Average basis at the end of the week was 47 over the March futures contract. Net sales reported by exporters for the 2013/14 marketing year from January 3rd to 9th were 25.8 million bushels, primarily to China, Mexico, Spain Portugal, and Bangladesh. Net sales reported by exporters for the 2014/15 marketing year were 19.3 million bushels, primarily to China, Mexico, and Japan. Exports for the same period were 57.4 million bushels primarily to China, Spain, Portugal, Mexico, and Taiwan. Soybean export sales and commitments were 102 percent of the USDA estimated total annual exports for the 2013/14 marketing year (September 1 to August 31), compared to a 5-year average of 80 percent. Many analysts are predicting cancellation of U.S. soybean export commitments when the South American soybean crop becomes available. Prior to any cancelations, buyers will want verification on the size of the South American crop and the ability to bring it effectively to market. May 2014 soybean futures were trading at $12.97. Mar/May and Mar/Nov future spreads were -19 cents and -191 cents.
November 2014 soybean futures closed at $11.25 up 26 cents for the week with support at $11.10 and resistance at $11.36. This week November 2014 soybean futures traded between $10.96 and $11.29/bu. As mentioned above, the anticipation of record planting has reduced harvest 2014 prices, however exports and domestic crush continue to be very strong and will likely continue to support harvest prices near the $11.00/bu level for the short term. Once South American production begins to reach the market this situation could change dramatically. Downside price protection could be achieved by purchasing an $11.40 November 2014 Put Option which would cost 70 cents and set a $10.70 futures floor.
Cotton
March 2014 cotton futures closed at 86.80 up 4.21 cents for the week with support at 85.36 and resistance at 87.86. Nearby cotton futures have broken above 85 cents and appear poised to take a run at 88 cents. In the past, buying has decreased substantially when prices have reached 88 cents, whether prices can push above this key point of resistance remains to be seen. It is likely that nearby cotton futures will settle back to the low or mid 80 cent range. Cotton adjusted world price (AWP) increased 0.17 cents to 67.84 cents. Net sales reported by exporters for the 2013/14 marketing year from January 3rd to 9th were up from last week at 223,700 bales of upland cotton, primarily to Vietnam, Indonesia, China, Pakistan, and Thailand. Net sales reported by exporters for the 2014/15 marketing year were 9,300 bales South Korea. Exports for the same period were 217,400 bales primarily to China, Turkey, Vietnam, Indonesia, and Mexico. Cotton export sales and commitments are 76 percent of the USDA estimated total annual exports for the 2013/14 marketing year (August 1 to July 31), compared to a 5-year average of 79 percent. May 2014 cotton futures are trading at 87.05 up 4.31 cents from last week. Mar/May and Mar/Dec future spreads were 0.25 cents and -6.92 cents.
December 2014 cotton futures closed at 79.88 up 2.43 cents for the week with support at 79.27 and resistance at 80.31. This week December 2014 cotton futures traded at 80 cents for the first time since October 21, 2013. Futures prices above 80 cents represent a good starting point to commence pricing for 2014 production. Downside price protection could be obtained by purchasing a 80 cent December 2014 Put Option costing 5.11 cents establishing a 74.89 cent futures floor.
Wheat
March 2014 wheat futures closed at $5.63 down 6 cents for the week with support at $5.55 and resistance at $5.78. Net sales reported by exporters for the 2013/14 marketing year from January 3rd to 9th were 11.8 million bushels, primarily to the Venezuela, Mexico, China, South Korea, and Thailand. Net sales reported by exporters for the 2014/15 marketing year were 3 million bushels primarily to the Philippines, Nigeria, and South Korea. Exports for the same period were 21.6 million bushels primarily to China, Brazil, Mexico, Thailand, and Japan. Wheat export sales are 81 percent of the USDA estimated total annual exports for the 2013/14 marketing year (June 1 to May 31), above the 5-year average of 78 percent. May 2014 wheat futures are trading at $5.70 down 5 cents from last week. Mar/May and Mar/Jul future spreads were 7 cents and 14 cents.
July 2014 wheat futures closed at $5.77 down 3 cents for the week with support at $5.68 and resistance at $5.91. In Tennessee, June/July cash forward contracts averaged $5.67/bu with a range of $5.21/bu to $5.93/bu at elevators and barge points. Old crop wheat was trading between $6.11 and $6.27. Downside price protection could be obtained by purchasing a $5.80 July 2014 Put Option costing 36 cents establishing a $5.44 futures floor.∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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