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USDA Reports Add Volatility To Market
DR. AARON SMITH
KNOXVILLE, TENN.
Corn and soybeans were up; and wheat and cotton were down for the week. This week there was added volatility in the markets due to the release of two key USDA reports at the beginning of the week. The USDA released its Prospective Plantings Report and Quarterly Grain Stocks Report on Monday. For the most part the reports fell within market expectations. Estimated corn planting acreage was slightly lower and soybean acreage slightly higher than average estimates. Ending corn stocks were tighter than estimated providing some validation of strong feed and residual use. The report indicated estimated domestic planting of: 91.691 million acres of corn; 81.493 million acres of soybeans; 55.815 million acres of wheat; and 11.101 million acres of cotton. Corn was down 4 percent from last year, however if realized would still be in the top five in planted acreage in the past 50 years. Soybeans were estimated up 6 percent from last year, an all-time high. Wheat was estimated down 1 percent from last year including a 3 percent drop in winter wheat acreage. Cotton acreage was estimated up 7 percent. Grain Stocks as of March 1 indicated: 7.01 billion bushels of corn up 30 percent from March 2013; 992 million bushels of soybeans down 1 percent from March 2013; and 1.06 billion bushels of wheat down 15 percent from March 2013. In Tennessee, planted acreage was estimated at: 830,000 acres of corn down 30,000 from last year; 1,600,000 acres of soybeans up 40,000 from last year; 280,000 acres of cotton up 30,000 from last year; and 560,000 acres of wheat down 50,000. Interested readers can access analysis of the reports at: http://economics.ag.utk.edu/news033114.html.
With these two key spring USDA reports now in the rear view mirror, markets will shift their domestic focus primarily to weather. Weather will undoubtedly play a key role in determining final acreage allocations and total number of acres planted for each commodity; however it is important to remember the speed which planting can occur. Nationally, last year, estimated corn acreage planted increased from 28 percent to 86 percent from May 12th to May 26th (14 days). This ability to plant substantial acreage in a small window is amplified in many key corn production regions. Domestically, two additional factors that should be watched in the periphery are the remaining export shipments and potential changes in managed money positions in futures markets, as these two factors could still have an impact on prices. Internationally, South American exports will be closely monitored as will the pace of Chinese imports.
Corn
May 2014 corn futures closed at $5.01 up 9 cents from last week with support at $4.91 and resistance at $5.05. 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 6 under to 35 over the May futures contract with an average of 16 over at the end of the week. Corn net sales reported by exporters from March 21st to 27th were within expectations at 37.8 million bushels for the 2013/14 marketing year and within expectations at 1.4 million bushels for the 2014/15 marketing year. Exports for the same time period were 56.1 million bushels. Corn export sales and commitments are 100 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. Ethanol production for the week ending March 28th was 922,000 barrels per day up 37,000 barrels per day. Ending ethanol stocks were 15.875 million barrels up 222,000 barrels. July 2014 corn futures were trading at $5.07/bu. May/July and May/Sep future spreads were 6 cents and 6 cent.
September 2014 corn futures closed at $5.07 up 16 cents from last week with support at $4.94 and resistance at $5.11. This week September and December 2014 corn futures prices traded between $4.76 and $5.11/bu. September cash forward contracts at elevators and barge points for the week averaged $4.96 with a range of $4.71 to $5.16. Pricing production near $5/bu still represents an excellent opportunity start or top off pre-planting pricing. Downside price protection could be obtained by purchasing a $5.10 September 2014 Put Option costing 41 cents establishing a $4.69 futures floor.
Soybeans
May 2014 soybean futures closed at $14.73 up 37 cents for the week with support at $14.48 and resistance at $14.93. Nearby soybean to corn price ratio was 2.94 at the end of the week. For the week, average soybean basis weakened or remained unchanged in all five regions. 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 3 over the May futures contract. Net sales reported by exporters from March 21st to 27th were within expectations at 2.4 million bushels for the 2013/14 marketing year and within expectations for the 2014/15 marketing year at 0.8 million bushels. Exports for the same period were 24.2 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 93 percent. July 2014 soybean futures were trading at $14.55. May/July and May/Nov future spreads were -18 cents and -265 cents.
November 2014 soybean futures closed at $12.08 up 18 cents for the week with support at $11.88 and resistance at $12.14. This week November 2014 soybean futures traded between $11.65 and $12.19/bu. Harvest soybean to corn price ratio was 2.38. November cash forward contracts averaged $11.99 with a range of $11.57 to $12.23. Similar to corn, prices are currently well above estimated breakeven prices, so topping off pre-planting pricing should be strongly considered. Downside price protection could be achieved by purchasing a $12.20 November 2014 Put Option which would cost 74 cents and set an $11.46 futures floor.
Cotton
May 2014 cotton futures closed at 92.4 down 1.34 cents for the week with support at 89.71 and resistance at 94.57. Cotton adjusted world price (AWP) decreased 0.82 cents to 73.81 cents. Net sales reported by exporters from March 21st to 27th were down from last week at 42,700 bales of upland cotton for the 2013/14 marketing year and 71,500 bales for the 2014/15 marketing year. Exports for the same period were up from last week at 246,700 bales. Cotton export sales and commitments are 92 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 96 percent. July 2014 cotton futures are trading at 92.67. May/July and May/Dec future spreads were 0.27 cents and -12.48 cents.
December 2014 cotton futures closed at 79.92 down 0.01 cents for the week with support at 78.81 and resistance at 80.71. December cotton futures traded between 79.02 and 80.15 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 cents establishing a 75 cent futures floor.
Wheat
May 2014 wheat futures closed at $6.69 down 26 cents for the week with support at $6.50 and resistance at $6.85. Net sales reported by exporters from March 21st to 27th were within expectations at 12.4 million bushels for the 2013/14 marketing year and within expectations at 11.4 million bushels for the 2014/15 marketing year. Exports for the same period were 19.2 million bushels. Wheat export sales are 95 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 98 percent. May wheat to corn price ratio was 1.34. In Tennessee, old crop wheat was trading between $6.96 and $7.01. May/July and May/September future spreads were 7 cents and 16 cents.
July 2014 wheat futures closed at $6.76 down 23 cents from last week with support at $6.57 and resistance at $6.91. July wheat futures traded between $6.65 and $7.06 this week. July/September wheat to corn price ratio was 1.33. In Tennessee, June/July cash forward contracts averaged $6.73 with a range of $6.25 to $7.04 at elevators and barge points. July wheat appears to have started downward trend due to rain in some key production regions and the temporary subsidence of the geopolitical situation in Russia/Ukraine. Downside price protection could be obtained by purchasing a $6.80 July 2014 Put Option costing 37 cents establishing a $6.43 futures floor.∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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