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Corn Prices Could Continue To Soften In 2014
DR. AARON SMITH
KNOXVILLE, TENN.
Corn, soybeans, and wheat were down; cotton was mixed for the week. Soybean markets gave back nearly half of the 70 cent per bushel increase from the middle of last week. The run-up in soybeans was largely based on changing positions before and after the WASDE report. As we move into 2014 corn prices could continue to soften as producers look to move corn after yearend and prior to commencing field work. As such, producers should consider pricing options that are currently available to them on corn for future delivery, should they chose to store, rather than waiting to price in early 2014. Friday afternoon the EPA announced its proposed levels of renewable fuels: cellulosic biofuel 17 million gallons (range 8-30 million gal); biomass-based diesel 1.28 billion gallons (range 1.28 billion gallons); advanced biofuel 2.20 billion gallons (range 2.0-2.51 billion gallons); renewable fuel 15.21 billion gallons (range 15.00-15.52 billion gallons). The full release can be found at: http://tinyurl.com/ow4l577
Corn
December 2013 corn futures closed at $4.22 down 4 cents from last week with support at $4.22 and resistance at $4.33. The November 12th USDA Crop Progress report estimated corn harvested at 84 percent compared to 97 percent last year and 79 percent for a 5-year average. In Tennessee, corn harvested was 93 percent compared to 100 percent last year and a 5-year average of 99 percent and corn condition was 90 percent good to excellent and 1 percent poor to very poor. Corn harvest in Tennessee is in the final stages and yields continue to be well above average. The USDA Crop Production report estimates the Tennessee corn crop at 130 million bushels, 34 million more than the 2011 record. Average basis across the state weekend slightly from last week to 0.09 under (0.08 under last week), overall basis ranged from 0.10 over to 0.30 under at elevators and barge points across the state. Corn sales exceeded trade estimates for the week with net sales reported by exporters for the 2013/14 marketing year from November 1st to 7th of 47.4 million bushels, primarily to Mexico, Japan, South Korea, China, and Saudi Arabia. Exports for the same time period were 18.3 million bushels primarily to Mexico, China, Japan, Peru, and Guatemala. Ethanol production for the week ending November 8th was the largest since February10, 2012 at 927,000 barrels per day up 25,000 barrels per day. Ending ethanol stocks were 15.153 million barrels down 12,000 barrels. March 2014 corn futures are trading at $4.30 down 8 cents from last week. Dec/Mar and Dec/Sep future spreads were 8 cents and 29 cents.
September 2014 corn futures closed at $4.51 down 8 cents from last week with support at $4.44 and resistance at $4.64. Producers looking to plant corn in 2014 are strongly encouraged to look at pricing alternatives early this season. Planting intentions are largely speculative at this point of the year however in general many believe that more soybean acres will be planted this spring than last year. An important factor to be cognizant of when estimating 2014 planting intentions is the record prevented planting acreage of 8.8 million acres for 2013. Typically the average is near 3 million acres. As such, if we assume an average spring in 2014, an additional 5 to 6 million acres have the potential to be planted. This acreage increase over 2013 could dampen any potential positive effect on corn prices of acres moving from corn to soybeans as the overall size of the pie would have increased. In the U.S., average year-over-year change in corn planted acres for the past 20 years is 1.1 million acres with a high of 15.2 million acres (2006 to 2007) and a low of -7.5 million acres in (2007 to 2008). Establishing a price floor to protect against downside risk, which in my opinion is more significant than upside potential in corn, is very important for the upcoming year. 2014 harvest prices continue to slide and may soon be below the $4.50/bushel level. Downside price protection could be obtained by purchasing a $4.60 September 2014 Put Option costing 40 cents establishing a $4.20 futures floor.
Soybeans
January 2014 soybean futures closed at $12.80 down 16 cents for the week with support at $12.53 and resistance at $13.29. Soybean to corn price ratio was 3.03 at the end of the week and futures contract spreads continue to be negative. Soybean prices have retreated substantially from early week highs and have given back some of the gains experienced from the bump received by the WASDE report. Soybean basis was between 0.15 over and 0.25 under in Tennessee at elevators and barge points. The Crop Progress report estimated soybeans harvested at 91 percent compared to 95 percent last year and 92 percent for a 5-year average. In Tennessee, soybeans dropping leaves was 97 percent compared to 93 percent last week and 100 percent last year; soybeans harvested was 56 percent compared to 89 percent last year and 85 percent for a 5-year average; and soybean condition was 85 percent good to excellent and 3 percent poor to very poor. Soybean harvest remains 2 plus weeks behind the 5-year average in Tennessee. Net sales reported by exporters for the 2013/14 marketing year from November 1st to 7th were below expectations at 31.2 million bushels, primarily to China, the Netherlands, Mexico, Spain, and Bangladesh. Net sales reported by exporters for the 2014/15 marketing year were 2.2 million bushels to China and Japan. Exports for the same period were 75.9 million bushels primarily to China, the Netherlands, Thailand, Mexico, and Spain. March 2014 soybean futures are trading at $12.65. Jan/Mar and Jan/Nov future spreads were -15 cents and -127 cents.
November 2014 soybean futures closed at $11.53 down 8 cents for the week with support at $11.35 and resistance at $11.87. Soybean planted acres in 2014 are estimated to be up from 2013 and the futures market has priced in a substantial increase in acreage. 2009 holds the record for most soybean acres planted at 77.451 million, there is a good chance we could break that record in 2014. The U.S. year-over-year has averaged an 820,000 acre increase over the past 20 years with the greatest decrease of 10.78 million planted acres (2006 to 2007) and increase 10.97 million planted acres (2007 to 2008) occurring back-to-back. Keep in mind that an estimated record South American crop is currently being planted and scheduled for harvest in spring 2014. Downside price protection could be achieved by purchasing an $11.60 November 2014 Put Option which would cost 73 cents and set a $10.87 futures floor.
Cotton
December 2013 cotton futures closed at 77.16 up 0.28 cents for the week with support at 75.22 and resistance at 78.62. The USDA Crop Progress report estimated: cotton harvested at 56 percent compared to 73 percent last year and 66 percent for a 5-year average; and cotton condition at 43 percent good to excellent and 21 percent poor to very poor. In Tennessee, cotton defoliated was 94 percent compared to 100 percent last year and 99 percent for a 5-year average; cotton harvested was 35 percent compared to 91 percent last year and 83 percent for a 5-year average; and cotton condition was 62 percent good to excellent and 8 percent poor to very poor. Tennessee cotton harvest is a month plus behind the 5-year average and with additional precipitation forecast for the Western part of the state this weekend anticipate additional delays. Cotton adjusted world price (AWP) increased 0.09 cents to 64.05 cents. Net sales reported by exporters for the 2013/14 marketing year from November 1st to 7th were up from last week at 472,700 bales of upland cotton, primarily to China, Turkey, Vietnam, Peru, and Thailand. Net sales reported by exporters for the 2014/15 marketing year were 9,200 bales to Turkey. Exports for the same period were 11,700 bales primarily to China, India, Indonesia, and Pakistan. March 2014 cotton futures are trading at 78.18 down 0.46 cents from last week. Dec/Mar and Dec/Dec future spreads were 1.02 cents and -0.65 cents.
December 2014 cotton futures closed at 76.51 down 0.08 cents for the week with support at 75.69 and resistance at 77.19. We are starting to see a harvest 2014 trading range being established between 75 and 80 cents whether it is able to hold against downward pressure remains to be seen. Estimated breakeven prices are at or above the 80 cent range which could discourage planting cotton in 2014. 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 unlikely that cotton markets will improve substantially. For producers considering planting cotton this spring it will be imperative to have good cost of production estimates and secure prices with positive margins. Downside price protection could be obtained by purchasing a 77 cent December 2014 Put Option costing 5.88 cents establishing a 71.12 cent futures floor.
Wheat
December 2013 wheat futures closed at $6.44 down 5 cents for the week with support at $6.38 and resistance at $6.56. The USDA Crop Progress report estimated: winter wheat planting at 95 percent compared to 94 percent last year and 93 percent for a 5-year average; winter wheat emerged at 84 percent compared to 78 percent last year and 80 percent for a 5-year average; and winter wheat condition at 65 percent good to excellent and 5 percent poor to very poor. In Tennessee, winter wheat planted was 58 percent compared to 84 percent last year and a 5-year average of 75 percent; winter wheat emerged was 29 percent compared to 54 percent last year and a 5-year average of 44 percent; and wheat condition was 83 percent good to excellent and 0 percent poor to very poor. Net sales reported by exporters for the 2013/14 marketing year from November 1st to 7th were below expectations at 10.5 million bushels, primarily to Nigeria, Thailand, Indonesia, and Mexico. Net sales reported by exporters for the 2014/15 marketing year were 0.03 million bushels to Mexico. Exports for the same period were 14.1 million bushels primarily to China, Nigeria, South Korea, Taiwan, and the Philippines. March 2014 wheat futures are trading at $6.54 down 7 cents from last week. Dec/Mar and Dec/Jul future spreads were 10 cents and 11 cents.
July 2014 wheat futures closed at $6.55 down 13 cents for the week with support at $6.53 and resistance at $6.69. Harvest wheat prices continue to drop and are approaching the 52 week low of $6.50/bu. June/July cash forward contracts were between $5.89/bu and $6.74/bu at elevators and barge points in Tennessee. Late harvest for soybeans and cotton have impacted wheat planting progress, although it is too early to determine if wheat acres will decrease for the upcoming year as a result. Downside price protection could be obtained by purchasing a $6.60 July 2014 Put Option costing 44 cents establishing a $6.16 futures floor.∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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