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Increased Export Sales Spurs Corn Rally
DR. AARON SMITH
KNOXVILLE, TENN.
Corn, soybeans, and wheat were up; cotton was mixed for the week. This week the closing futures prices are from the close of business Thursday. The USDA is holding their 2014 Outlook Forum on Thursday and Friday February 20th and 21st in Arlington, VA. Highlights from Thursday’s program were the release of USDA Chief Economist Joseph Glauber’s 2014 planted acreage predictions and 2014/15 marketing year commodity prices (prices for crops harvested summer and fall of 2014). Corn acreage was estimated at 92 million acres down 3.5 percent from last year with an estimated marketing year average price of $3.90/bu. Soybeans were estimated at 79.5 million acres up 3.5 percent from last year with an estimated marketing year average price of $9.65/bu. All wheat acreage was estimated at 55.5 million acres down 1.2 percent from last year with an average marketing year price of $5.30/bu. Cotton acreage was estimated at 11.5 million acres up 10.5 percent from last year with a marketing year average price of 68 cents/lb. One of the key assumptions of the price predictions was an average or above average crop (no drought in key global production regions and achieving close to trend line yield). Export sales and strong demand for agricultural commodities globally have been key in the latest rally in corn and soybean futures prices. Wheat prices have been buoyed by concerns over winter wheat damage due to cold weather in key production regions and the increase in other grain prices. Next week I will provide a complete recap of the remaining USDA Outlook conference.
Corn
March 2014 corn futures closed at $4.55 up 10 cents from last week with support at $4.48 and resistance at $4.59. Across Tennessee basis (cash price- nearby future price) strengthened at Memphis, Northwest, Upper-middle, and Lower-middle Tennessee and weakened at Northwest Barge Points. Overall basis for the week ranged between even to 36 over the March futures contract. Corn net sales reported by exporters for the 2013/14 marketing year from February 7th to 13th were above expectations at 27.3 million bushels, primarily to Japan, Peru, Egypt, Venezuela, and Guatemala. Exports for the same time period were 29.3 million bushels primarily to Japan, Mexico, Peru, South Korea, and Columbia. Corn export sales and commitments are 87 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 69 percent. Ethanol production for the week ending February 14th was 903,000 barrels per day up 1,000 barrels per day. Ending ethanol stocks were 17.203 million barrels up 141,000 barrels. May 2014 corn futures were trading at $4.62 up 12 cents from last week. Mar/May and Mar/Sep future spreads were 7 cents and 11 cents.
September 2014 corn futures closed at $4.66 up 10 cents from last week with support at $4.57 and resistance at $4.69. This week September and December 2014 corn futures prices traded between $4.55 and $4.69/bu. Pricing additional 2014 corn production is strongly encouraged at this time. A great deal of uncertainty exists regarding the 2014 corn crop however more downside price risk exists at this time than upside price potential. Downside price protection could be obtained by purchasing a $4.70 September 2014 Put Option costing 34 cents establishing a $4.36 futures floor.
Soybeans
March 2014 soybean futures closed at $13.58 up 21 cents for the week with support at $13.37 and resistance at $13.71. Soybean to corn price ratio was 2.98 at the end of the week. For the week, soybean basis weakened in Memphis and Northwest Barge Points; and strengthened in Lower-middle, Upper-middle, and Northwest Tennessee. Basis ranged from 1 under to 55 over the March futures contract at elevators and barge points. Average basis at the end of the week was 31 over the March futures contract. Net sales reported by exporters for the 2013/14 marketing year from February 7th to 13th were below expectations at 3.2 million bushels, primarily to the Netherlands, Mexico, Indonesia, Japan, and Vietnam. Net sales reported by exporters for the 2014/15 marketing year were 27.5 million bushels, primarily to China, Mexico, and Japan. Exports for the same period were 49.2 million bushels primarily to China, the Netherlands, Vietnam, Indonesia, and Mexico. Soybean export sales and commitments are 105 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 87 percent. May 2014 soybean futures were trading at $13.47. Mar/May and Mar/Nov future spreads were -11 cents and -213 cents.
November 2014 soybean futures closed at $11.45 up 15 cents for the week with support at $11.30 and resistance at $11.54. This week November 2014 soybean futures traded between $11.28 and $11.46/bu. With the latest USDA projected prices released producers may want to consider pricing 2014 production near $11.40/bu. Downside price protection could be achieved by purchasing an $11.60 November 2014 Put Option which would cost 69 cents and set a $10.91 futures floor.
Cotton
March 2014 cotton futures closed at 86.37 down 1.18 cents for the week with support at 85.58 and resistance at 87.70. Cotton adjusted world price (AWP) increased 0.68 cents to 72.9 cents. Net sales reported by exporters for the 2013/14 marketing year from February 7th to 13th were down from last week at 70,500 bales of upland cotton, primarily to Mexico, Turkey, Peru, South Korea, and Taiwan. Net sales reported by exporters for the 2014/15 marketing year were 203,700 bales primarily to Mexico, Morocco, South Korea, and Turkey. Exports for the same period were 324,500 bales primarily to Turkey, China, Vietnam, Mexico, and Indonesia. Cotton export sales and commitments are 90 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 87 percent. May 2014 cotton futures are trading at 87.65 down 1.39 cents from last week. Mar/May and Mar/Dec future spreads were 1.28 cents and -8.38 cents.
December 2014 cotton futures closed at 77.99 down 0.31 cents for the week with support at 77.2 and resistance at 78.38. December cotton futures traded between 77.4 and 78.14 cents this week. Both nearby and harvest futures have very well established trading ranges. If harvest futures get above 80 cents pricing some 2014 production is strongly encouraged. Downside price protection could be obtained by purchasing a 78 cent December 2014 Put Option costing 4.47 cents establishing a 73.53 cent futures floor.
Wheat
March 2014 wheat futures closed at $6.16 up 18 cents for the week with support at $6.06 and resistance at $6.25. Net sales reported by exporters for the 2013/14 marketing year from February 7th to 13th were below expectations at 15.6 million bushels, primarily to Japan, the Philippines, Uruguay, and Columbia. Net sales reported by exporters for the 2014/15 marketing year were 2.5 million bushels primarily to Nicaragua and China. Exports for the same period were 10.7 million bushels primarily to Brazil, Japan, South Korea, Mexico, and Nigeria. Wheat export sales are 87 percent of the USDA estimated total annual exports for the 2013/14 marketing year (June 1 to May 31), compared to a 5-year average of 88 percent. In Tennessee, old crop wheat was trading between $6.52 and $6.76. May 2014 wheat futures are trading at $6.13 up 17 cents from last week. Mar/May and Mar/Jul future spreads were -3 cents and 1 cent.
July 2014 wheat futures closed at $6.17 up 17 cents from last week with support at $6.09 and resistance at $6.22. July wheat futures traded between $6.00 and $6.18 this week. In Tennessee, June/July cash forward contracts averaged $6.04/bu with a range of $5.51/bu to $6.32/bu at elevators and barge points. Downside price protection could be obtained by purchasing a $6.20 July 2014 Put Option costing 35 cents establishing a $5.85 futures floor.∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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