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Holidays Spur Drop In Grain Prices
DR. AARON SMITH
KNOXVILLE, TENN.
Corn, soybeans, cotton, and wheat were down from December 19th. Since reaching a 5-month contract high on December 29th of $4.17/bu, March corn has dropped 22 cents closing on Friday at $3.95/bu. March soybeans achieved a 1-month high on December 29th of $10.68, before dropping 61 cents in three trading days to close this Friday at $10.07/bu. Continued volatility in grain and oilseed future markets are likely to persist as we move further in to 2015. Currently, a good argument can be made for further price declines or a rally in early 2015. Those bullish in grain and oilseed markets will point to the demand side where exports, domestic soybean demand, and corn ethanol use have exceeded USDA expectations to date. Those with a bearish outlook will point to high domestic stocks-to-use ratios, large global supplies, and good growing conditions year-to-date in South America. The USDA has several key reports that will be released in January that will provide additional information to the markets regarding domestic production and carryover as well as global supply and use. These reports will aid in setting the tone for the remainder of the 2014/15 marketing year (September 1 to August 31 for corn and soybeans).
For harvest 2015, markets will look to planting intention reports from both private firms and the USDA as we move through January and February. At this time, there is a tremendous amount of uncertainty as to the acreage that will be planted this spring, however early estimates have domestic increases in soybeans at the expense of corn acreage. This could change quickly and dramatically if harvest soybean-to-corn price ratios (November 2015 soybean futures price divided by December 2015 corn futures price) begin to move in favor corn. Currently, the ratio is 2.37 ($9.93/$4.19).
Corn
March 2015 corn futures closed at $3.95 down 15 cents a bushel since December 19. Across Tennessee average basis (cash price- nearby future price) strengthened or remained unchanged in Memphis, Northwest, Lower-middle, and Upper-middle Tennessee and weakened at Northwest Barge Points. Overall average basis for the week ranged from 21 under to 31 over the March futures contract with an average of 2 over at the end of the week. Ethanol production for the week ending December 26th was 972,000 barrels per day down 20,000 barrels per day from last week. Ending ethanol stocks were 18.094 million barrels up 479,000 barrels from last week. This week March 2015 corn futures prices traded between $3.91 and $4.17. Mar/May and Mar/Sep future spreads were 9 cents and 18 cents, respectively.
May 2015 corn futures closed at $4.04 down 15 cents since Dec 19. Corn net sales reported by exporters from December 19th to 25th were above expectations with net sales of 35.2 million bushels for the 2014/15 marketing year. Exports for the same time period were down from last week at 26.3 million bushels. Corn export sales and commitments were 61 percent of the USDA estimated total annual exports for the 2014/15 marketing year (September 1 to August 31) compared to a 5-year average of 59 percent. September 2015 cash forward contracts averaged $4.13 with a range of $3.91 to $4.51. September 2015 futures closed at $4.13 down 15 cents from last week. Downside price protection could be obtained by purchasing a $4.20 September 2015 Put Option costing 37 cents establishing a $3.83 futures floor.
Soybeans
March 2015 soybean futures closed at $10.07 down 31 cents since December 19. Mar soybean to corn price ratio was 2.55 at the end of the week. For the week, average soybean basis weakened in Memphis, Northwest Barge Points, and Upper middle Tennessee and strengthened in Northwest and Lower-middle Tennessee. Basis ranged from 10 under to 35 over the January futures contract at elevators and barge points. Average basis at the end of the week was 14 over the January futures contract. January 2015 soybean futures closed at $10.02 this week. This week March 2015 soybean futures traded between $10.07 and $10.68.
May 2015 soybean futures closed at $10.14 down 16 cents since December 19. Net sales reported by exporters were within expectations with net sales of 22.5 million bushels for the 2014/15 marketing year. Exports for the same period were down from last week at 39.2 million bushels. Soybean export sales and commitments were 88 percent of the USDA estimated total annual exports for the 2014/15 marketing year (September 1 to August 31), compared to a 5-year average of 82 percent. Mar/May and Mar/Nov future spreads were 7 cents and -14 cents. October/November 2015 cash forward contracts averaged $10.02 with a range of $9.73 to $10.30. Nov/Sep 2015 soybean to corn price ratio was 2.40. November 2015 futures closed at $9.93 down 24 cents from December 19. Downside price protection could be achieved by purchasing a $10.00 November 2015 Put Option which would cost 76 cents and set a $9.24 futures floor.
Cotton
March 2015 cotton futures closed at 59.58 cents down 1.31 cents since December 19. Cotton adjusted world price (AWP) increased 0.15 cents from last week to 48.74 cents. March 2015 cotton futures traded between 59.47 and 62.29 cents this week.
May 2015 cotton futures closed at 60.25 down 1.1 cents since December 19. Net sales reported by exporters were down from last week at 89,400 bales for the 2014/15 marketing year and 12,000 bales for the 2015/16 marketing year. Exports for the same period were down from last week at 169,600 bales. Upland cotton export sales were 80 percent of the USDA estimated total annual exports for the 2014/15 marketing year (August 1 to July 31), compared to a 5-year average of 78 percent. Mar/May and Mar/Dec futures spread were 0.67 cents and 4.33 cents. December 2015 cotton futures closed at 63.91 down 0.63 cents since December 19. Downside price protection could be obtained by purchasing a 64 cent December 2015 Put Option costing 4.27 cents establishing a 59.73 cent futures floor.
Wheat
March 2015 wheat futures closed at $5.81 down 51 cents since December 19. March wheat futures traded between $5.74 and $6.20 this week. March wheat to corn price ratio was 1.47. Mar/May and Mar/July future spreads were 5 cents and 8 cents, respectively.
May 2015 wheat futures closed at $5.86 down 49 cents since December 19. Net sales reported by exporters were within expectations at 13 million bushels for the 2014/15 marketing year and 0.7 million bushels for the 2015/16 marketing year. Exports for the same period were down from last week at 5.5 million bushels. Wheat export sales were 74 percent of the USDA estimated total annual exports for the 2014/15 marketing year (June 1 to May 31), compared to a 5-year average of 76 percent. June/July 2015 cash forward contracts averaged $5.97 with a range of $5.30 to $6.30 at elevators and barge points. July 2015 wheat futures closed at $5.89 down 45 cents since December 19. Downside price protection could be obtained by purchasing a $5.9 July 2015 Put Option costing 42 cents establishing a $5.48 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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