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WASDE And Crop Production Report Contained Bearish Information
DR. AARON SMITH
KNOXVILLE, TENN.
Corn and cotton were mixed; wheat was down; and soybeans were up for the week. On Friday the USDA released the much anticipated WASDE and Crop Production reports. Corn production was up 1 percent, soybean production up 3 percent, and cotton production was up 2 percent. Overall the reports contained bearish information however the market had factored in very bearish reports and corn and soybean prices increased as a result.
Nationally, corn yields were increased 5.1 bu/acre from the September report to 160.4 bu/acre harvested acreage was reduced by 1.9 million acres resulting in increased production of 146 million bushels. Beginning stocks were raised 163 million bushels. In Tennessee, corn estimates were: 156 bu/acre, 835,000 acres harvested, and production of 130.26 million bushels. Domestic corn use and exports were increased 100 million bushels and 175 million bushels. U.S. ending stocks were increased 32 million bushels, much less than the 100 to 300 million bushel increase some were anticipating. 2013/14 marketing year average farm price was adjusted down 30 cents on both ends of the range to $4.10-$4.90/bu. World corn ending stocks were estimated up 8 percent from September.
Nationally, soybean yields were raised 1.8 bu/acre to 43 bu/acre and harvested acres were decreased to 75.7 million acres resulting in a net increase in production over the September report of 109 million bushels. In Tennessee, soybean estimates were: 48 bu/acre, 1.52 million acres, and production of 72.96 million bushels. Crushing and exports were increased 30 and 80 million bushels, respectively. Ending stocks were estimated at 170 million bushels up 20 million from the September report. 2013/14 marketing year average farm price was decreased 35 cents on both ends of the range to $11.15-$13.15/bu. World ending stocks for soybeans were down almost 2 percent from the September WASDE.
Nationally, cotton acreage was unchanged from the September report however yield was increased from 796 lbs/acre to 808 lbs/acre resulting in an increase in production of 210,000 bales. In Tennessee, cotton estimates were: 878 lbs/acre, 235,000 acres, and production of 430,000 bales. Domestic use was increased 100,000 bales while exports remained unchanged. 2013/14 marketing year average farm prices were decreased on the top end of the range from 85 to 79 cents/lb the bottom of the range was unchanged at 69 cents. World cotton stocks increased almost 1 million bales to 95.71 million bales. Chinese ending stocks were reduced 0.5 million bales.
Nationally wheat acres harvested decreased by 0.5 million and average yield increased 1 bu/acre resulting in increased production of 16 million bushels. Imports were estimated up 10 million bushels, largely due to imports from Canada where there was a very large crop. Feed use was up 30 million bushels food use was down 8 million bushels. Ending stocks were up 4 million bushels. 2013/14 marketing year average farm price was changed 20 cents up on the low end and 20 cents down on the high end to $6.70-$7.30/bu. World wheat ending stocks increased 1.2 percent.
Corn
December 2013 corn futures closed at $4.26 down 1 cent from last week with support at $4.09 and resistance at $4.37. The November 4th USDA Crop Progress report estimated corn harvested at 73 percent compared to 95 percent last year and 71 percent for a 5-year average. In Tennessee, corn harvested was 88 percent compared to 99 percent last year and a 5-year average of 97 percent and corn condition was 91 percent good to excellent and 2 percent poor to very poor. Harvest has progressed rapidly to the point where we are now currently ahead of the 5-year average pace in the U.S. In Tennessee, corn harvest is about a week behind the 5-year average. Currently corn prices are being pressured lower due to the estimated size of this year’s crop. Prices may remain higher than supply would dictate in early 2014 for two reasons: 1) increased corn stored and 2) strong demand by processors and exporters. Many producers over the last five years have increased on farm storage and due to the drought and high prices in 2012 these bins were for the most part empty prior to this year’s harvest. Additionally, many producer balance sheets are very strong from high grain prices. The result may be a reluctance to sell corn at or near $4.00/bu. This will most likely become more prevalent after harvest is completed and delivery of non-stored bushels has occurred. March 2014 corn futures are trading at $4.38 up 1 cent from last week. Dec/Mar and Dec/Sep future spreads were 12 cents and 33 cents.
September 2014 corn futures closed at $4.59 up 1 cent from last week with support at $4.43 and resistance at $4.68. Due to the size of the 2013 corn crop and the potential for a significant carry over into the 2014/15 marketing year it is unlikely (baring major production issues or acreage reallocations) that harvest 2014 prices increase dramatically. At this time, there is significantly more downside risk in the market than upside potential for harvest 2014 prices. Corn sales exceeded trade estimates for the week with net sales reported by exporters for the 2013/14 marketing year from October 25th-31st of 67.7 million bushels, primarily to Japan, South Korea, China, Mexico, and Egypt. Exports for the same time period were 28 million bushels primarily to Mexico, China, Japan, Colombia, and Indonesia. Ethanol production for the week ending November 1st was 902,000 barrels per day down 9,000 barrels per day. Ending ethanol stocks were 15.165 million barrels down 204,000 barrels. Downside price protection could be obtained by purchasing a $4.70 September 2014 Put Option costing 44 cents establishing a $4.26 futures floor.
Soybeans
January 2014 soybean futures closed at $12.96 up 45 cents for the week with support at $12.49 and resistance at $13.20. Soybean to corn price ratio was 3.04 at the end of the week and futures contract spreads continue to be negative. The Crop Progress report estimated soybeans harvested at 73 percent compared to 95 percent last year and 71 percent for a 5-year average. In Tennessee, soybeans dropping leaves was 93 percent compared to 99 percent last week and 100 percent last year; soybeans harvested was 46 percent compared to 78 percent last year and 74 percent for a 5-year average; and soybean condition was 83 percent good to excellent and 4 percent poor to very poor. March 2014 soybean futures are trading at $12.76. Jan/Mar and Jan/Nov future spreads were -20 cents and -135 cents.
November 2014 soybean futures closed at $11.61 up 16 cents for the week with support at $11.31 and resistance at $11.79. Planting intentions by producers for 2014 will be closely monitored to determine if any major increases in soybean acreage occur. Currently, many are estimating a significant shift into soybeans, whether this is realized domestically or not will remain to be seen. CONAB, the Brazilian equivalent of the USDA, released revised planting acreage for soybeans at 72.9 million acres up an additional 500,000 acres from previous estimates. Net sales reported by exporters for the 2013/14 marketing year from October 25th -31st were above expectations at 37.4 million bushels, primarily to China, Indonesia, Japan, Spain, the Netherlands, and Mexico. Net sales reported by exporters for the 2014/15 marketing year were 0.7 million bushels to Japan. Exports for the same period were 79.4 million bushels primarily to China, Mexico, Indonesia, Spain, and Egypt. Downside price protection could be achieved by purchasing an $11.80 November 2014 Put Option which would cost 86 cents and set a $10.94 futures floor.
Cotton
December 2013 cotton futures closed at 76.88 up 0.30 cents for the week with support at 75.39 and resistance at 78.43. The USDA Crop Progress report estimated: cotton bolls opening at 95 percent compared to 98 percent last year and 97 percent for a 5-year average; cotton harvested at 43 percent compared to 61 percent last year and 54 percent for a 5-year average; and cotton condition at 43 percent good to excellent and 23 percent poor to very poor. In Tennessee, cotton bolls opening was 95 percent compared to 100 percent last year and a 5-year average of 100 percent; cotton defoliated was 87 percent compared to 100 percent last year and 99 percent for a 5-year average; cotton harvested was 21 percent compared to 84 percent last year and 74 percent for a 5-year average; and cotton condition was 60 percent good to excellent and 11 percent poor to very poor. Cotton adjusted world price (AWP) decreased 1.07 cents to 63.96 cents. Cotton harvest in Tennessee is estimated to be 3 to 5 weeks behind average, rain on Wednesday this week has delayed harvest further. March 2014 cotton futures are trading at 78.64 down 0.06 cents from last week. Dec/Mar and Dec/Dec future spreads were 1.76 cents and -0.29 cents.
December 2014 cotton futures closed at 76.59 up 0.08 cents for the week with support at 76.41 and resistance at 77.45. Net sales reported by exporters for the 2013/14 marketing year from October 25th – 31st were 303,700 bales of upland cotton, primarily to Turkey, China, Thailand, Vietnam, and Indonesia. Net sales reported by exporters for the 2014/15 marketing year were 900 bales to Japan. Exports for the same period were 77,600 bales primarily to China, Mexico, Turkey, Indonesia, and Thailand. Cotton prices continue to face significant uncertainty due to global supply and reserve issues. Until these issues are resolved or a clear direction has been established in Chinese cotton policy it is likely that cotton markets will remain below 80 cents/lb. For producers considering planting cotton this spring it will be imperative to have good cost of production estimates. Downside price protection could be obtained by purchasing a 77 cent December 2014 Put Option costing 5.59 cents establishing a 71.41 cent futures floor.
Wheat
December 2013 wheat futures closed at $6.49 down 18 cents for the week with support at $6.36 and resistance at $6.65. The USDA Crop Progress report estimated: winter wheat planting at 91 percent the same as last year and 90 percent for a 5-year average; winter wheat emerged at 78 percent compared to 72 percent last year and 73 percent for a 5-year average; and winter wheat condition at 63 percent good to excellent and 6 percent poor to very poor. In Tennessee, winter wheat planted was 39 percent compared to 70 percent last year and a 5-year average of 60 percent; winter wheat emerged was 18 percent compared to 40 percent last year and a 5-year average of 28 percent; and wheat condition was 82 percent good to excellent and 1 percent poor to very poor. March 2014 wheat futures are trading at $6.61 down 18 cents from last week. Dec/Mar and Dec/Jul future spreads were 12 cents and 19 cents.
July 2014 wheat futures closed at $6.68 down 16 cents for the week with support at $6.54 and resistance at $6.81. Net sales reported by exporters for the 2013/14 marketing year from October 25th-31st were within expectations at 15.3 million bushels, primarily to Taiwan, Mexico, Peru, the Philippines, Brazil, and Italy. Net sales reported by exporters for the 2014/15 marketing year were 0.4 million bushels to Mexico. Exports for the same period were 11.5 million bushels primarily to Brazil, Japan, Guatemala, Venezuela, Nigeria, and Trinidad. Downside price protection could be obtained by purchasing a $6.70 July 2014 Put Option costing 39 cents establishing a $6.31 futures floor.∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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