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Problems In Ukraine Spurs Market Uncertainty
DR. AARON SMITH
KNOXVILLE, TENN.
Corn, soybeans, and wheat were up and cotton was mixed for the week. Geopolitical concerns in Ukraine and dry weather in the southern plains continues to provide uncertainty/volatility in the grain markets. Markets are positioning themselves for Monday March 31st when the USDA will release the Prospective Plantings and Grain Stocks reports. This spring, most analysts are expecting record soybean acreage of between 79 and 84 million acres to be planted. The current record is 77.45 million acres in 2009. Corn acreage is anticipated at 91 to 95 million acres down from last year’s planting of 95.37 million acres. While corn acreage is anticipated down it is still estimated to be in the top five in planted acreage for the past 50 years. Total wheat acreage is estimated down about 1 million acres from 2013 at 55.3 million acres. Cotton acreage is anticipated up 1 million acres at 11.5 million due to improvements in relative profitability compared to corn and soybeans.
Corn Stocks as of March 1st are estimated higher than last year’s 5.4 billion bushels. There is potentially fuel for both the bears and bulls in this estimate. The bulls will continue to point to the export numbers while bears will be concerned over the potential over estimation of feed and residual use by the USDA on WASDE reports. Soybean stocks will likely be close to the same as last year at just under 1 billion bushels. Tight domestic soybean stocks are likely however this could be mitigated with potential imports from South America. Wheat stocks as of March 1st last year were 1.23 billion bushels, this year we will likely see a slight reduction from 2013.
In Tennessee, last year 890,000 acres of corn, 1.56 million acres of soybeans, and 250,000 acres of cotton were planted. Additionally, the Winter Wheat Seedings report indicated that 2014 wheat acreage was down 100,000 acres from 2013 at 510,000 acres. For spring planting 2014, we are likely to see an increase in soybean acreage, a small reduction in corn acreage, and cotton acreage holding steady or marginally increasing. I will post complete analysis of the two reports on the Crop Economics Web page Monday March 31st (http://economics.ag.utk.edu/crop.html).
Corn
May 2014 corn futures closed at $4.92 up 13 cents from last week with support at $4.85 and resistance at $4.99. Across Tennessee basis (cash price- nearby future price) strengthened or remained unchanged in all five regions (Lower-middle, Memphis, Northwest Barge Points, Upper-middle, and Northwest). Overall basis for the week ranged from 13 under to 36 over the May futures contract with an average of 17 over at the end of the week. Corn net sales reported by exporters from March 14th to 20th were above expectations at 55.4 million bushels for the 2013/14 marketing year and within expectations at 1.1 million bushels for the 2014/15 marketing year. Exports for the same time period were 48.4 million bushels. Corn export sales and commitments are 98 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 77 percent. Ethanol production for the week ending March 21st was 885,000 barrels per day down 6,000 barrels per day. Ending ethanol stocks were 15.653 million barrels up 376,000 barrels. July 2014 corn futures were trading at $4.96/bu. May/July and May/Sep future spreads were 4 cents and -1 cent.
September 2014 corn futures closed at $4.91 up 10 cents from last week with support at $4.86 and resistance at $4.97. This week September and December 2014 corn futures prices traded between $4.78 and $4.95/bu. September cash forward contracts at elevators and barge points for the week averaged $4.81 with a range of $4.59 to $4.95. The latest market rally continues to provide pricing opportunities above breakeven points. These opportunities should not be allowed to pass idly by. Downside price protection could be obtained by purchasing a $5.00 September 2014 Put Option costing 44 cents establishing a $4.56 futures floor.
Soybeans
May 2014 soybean futures closed at $14.36 up 28 cents for the week with support at $14.20 and resistance at $14.51. Nearby soybean to corn price ratio was 2.92 at the end of the week. For the week, average soybean basis strengthened at Memphis, Northwest barge points, and Upper-middle Tennessee; weakened in Northwest Tennessee; and remained unchanged in Lower-middle Tennessee. Basis ranged from 16 under to 55 over the May futures contract at elevators and barge points. Average basis at the end of the week was 15 over the May futures contract. Net sales reported by exporters from March 14th to 20th were below expectations at 0.4 million bushels for the 2013/14 marketing year and above expectations for the 2014/15 marketing year at 19.7 million bushels. Exports for the same period were 26.5 million bushels. Soybean export sales and commitments are 107 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 92 percent. July 2014 soybean futures were trading at $14.07. May/July and May/Nov future spreads were -29 cents and -246 cents.
November 2014 soybean futures closed at $11.90 up 13 cents for the week with support at $11.82 and resistance at $11.98. This week November 2014 soybean futures traded between $11.68 and $11.94/bu. Harvest soybean to corn price ratio was 2.42. November cash forward contracts averaged $11.89 with a range of $11.54 to $12.09. Similar to corn, prices are currently above breakeven prices. Opportunities to price above breakeven may not continue to be available to producers. Downside price protection could be achieved by purchasing a $12.00 November 2014 Put Option which would cost 72 cents and set an $11.28 futures floor.
Cotton
May 2014 cotton futures closed at 93.74 up 0.28 cents for the week with support at 91.71 and resistance at 94.81. Cotton adjusted world price (AWP) decreased 0.66 cents to 74.63 cents. Net sales reported by exporters from March 14th to 20th were up from last week at 66,300 bales of upland cotton for the 2013/14 marketing year and 76,600 bales for the 2014/15 marketing year. Exports for the same period were up from last week at 259,100 bales. Cotton export sales and commitments are 92% 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 95 percent. July 2014 cotton futures are trading at 93.61. May/July and May/Dec future spreads were -0.13 cents and -13.81 cents.
December 2014 cotton futures closed at 79.93 down 0.32 cents for the week with support at 79.11 and resistance at 80.37. December cotton futures traded between 78.78 and 80.50 cents this week. December cotton futures continue to trade below 80.5 cents, whether prices can push into the lower middle 80s prior to planting remains to be seen. Downside price protection could be obtained by purchasing an 80 cent December 2014 Put Option costing 5.25 cents establishing a 74.75 cent futures floor.
Wheat
May 2014 wheat futures closed at $6.95 up 2 cents for the week with support at $6.84 and resistance at $7.14. Net sales reported by exporters from March 14th to 20th were within expectations at 14.7 million bushels for the 2013/14 marketing year and above expectations at 12 million bushels for the 2014/15 marketing year. Exports for the same period were 19.5 million bushels. Wheat export sales are 94 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 97 percent. May wheat to corn price ratio was 1.41. In Tennessee, old crop wheat was trading between $7.16 and $7.39. May/July and May/September future spreads were 4 cents and 11 cents.
July 2014 wheat futures closed at $6.99 up 4 cents from last week with support at $6.88 and resistance at $7.17. July wheat futures traded between $6.69 and $7.20 this week. July/September wheat to corn price ratio was 1.42. In Tennessee, June/July cash forward contracts averaged $6.94 with a range of $6.51 to $7.17 at elevators and barge points. Downside price protection could be obtained by purchasing a $7.00 July 2014 Put Option costing 42 cents establishing a $6.58 futures floor.∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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