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Corn Began The Week Setting New Lows But Ended Up Same Close As Last Week
DR. AARON SMITH
KNOXVILLE, TENN.
Soybeans and wheat were up; cotton was down; and corn was mixed for the week. Corn started the week setting new lows however ended up at the same close as last week. Soybeans were the big gainer this week up 39 cents per bushel primarily due to stronger than anticipated export sales. Cotton continues its downward trend and is approaching the 75 cent/lb level for both the 2013 and 2014 December futures contracts. Wheat closed up for the week with additional exports to Brazil. As we move closer and closer to the end of 2013 it becomes increasingly likely that the existing farm bill will be extended rather than a new farm bill passed.
Corn
December 2013 corn futures closed at $4.22 the same as last week with support at $4.16 and resistance at $4.29. December futures prices got as low as $4.10/ bu this week before rebounding in the middle of the week, whether this will be the harvest low or not remains to be seen. The November 18th USDA Crop Progress report estimated corn harvested at 91 percent compared to 99 percent last year and 86 percent for a 5-year average. In Tennessee, corn harvested was 98 percent compared to 100 percent last year and a 5-year average of 100 percent and corn condition was 90 percent good to excellent and 1 percent poor to very poor. Across Tennessee basis (cash price-future price) strengthened this week. Improvements in basis were between 2 cents in the Northwest to 19 cents in the Upper Middle reporting region. Overall basis at the end of the week averaged between 18 under to 18 over the December Futures Contract. For the week, Northwest barge points and Memphis had the strongest average basis while Northwest and Upper Middle Tennessee had the weakest. Corn sales were within trade estimates for the week with net sales reported by exporters for the 2013/14 marketing year from November 8th to 14th of 37.2 million bushels, primarily to Japan, China, Mexico, Egypt, Columbia, and Guatemala. Net sales reported by exporters for the 2014/15 marketing year were 1.5 million bushels to Japan. Exports for the same time period were 29.8 million bushels primarily to China, Mexico, Japan, Columbia, and El Salvador. Corn export sales are at 69 percent of projected USDA exports (966 million bushels versus the 1.4 billion bushels) for 2013/14 marketing year or about 22 percent higher than the 5-year average sales at this point in the marketing year. This has lent some support to corn prices and will most likely lead to a revision in exports in the next WASDE report. Ethanol production for the week ending November 15th was 904,000 barrels per day down 23,000 barrels per day. Ending ethanol stocks were 15.083 million barrels down 70,000 barrels. March 2014 corn futures are trading at $4.29 down 1 cent from last week. Dec/Mar and Dec/Sep future spreads were 7 cents and 28 cents.
September 2014 corn futures closed at $4.50 down 1 cent from last week with support at $4.45 and resistance at $4.55. September and December 2014 corn futures prices have a significant amount of production risk priced in at this point however these prices continue to decline with lower nearby futures prices. Establishing a price floor for the 2014 production year is strongly encouraged. With nearly 14 billion bushels of production estimated in 2013 a substantial carry over into the next marketing year is all but assured, if an above average crop is produced in 2014 this will add to the carry over and prices will drop substantially. At this time there is significantly more downside risk than upside potential for 2014 harvest prices. Downside price protection could be obtained by purchasing a $4.50 September 2014 Put Option costing 35 cents establishing a $4.15 futures floor.
Soybeans
January 2014 soybean futures closed at $13.19 up 39 cents for the week with support at $12.79 and resistance at $13.42. Soybean to corn price ratio was 3.12 at the end of the week. Soybean prices rebound this week on strong export sales numbers. In Tennessee, soybean basis for five locations was between 18 under and 28 over the January futures contract at elevators and barge points. The Crop Progress report estimated soybeans harvested at 95 percent compared to 98 percent last year and 96 percent for a 5-year average. In Tennessee, soybeans harvested was 75 percent compared to 96 percent last year and 93 percent for a 5-year average; and soybean condition was 85 percent good to excellent and 3 percent poor to very poor. Net sales reported by exporters for the 2013/14 marketing year from November 8th to 14th were above expectations at 50.6 million bushels, primarily to China, Mexico, the Netherlands, Spain, and Saudi Arabia. Exports for the same period were 91.4 million bushels primarily to China, Taiwan, the Netherlands, Spain, Egypt, and France. Strong export sales provided price gains in soybeans this week. For the week ended November 14th export sales are 90 percent (about 25 percent higher than the 5-year average) of the USDA estimated 1.456 billion bushel total for the 2013-14 marketing year, as such a significant adjustment should be anticipated in Future WASDE reports. March 2014 soybean futures are trading at $13.06. Jan/Mar and Jan/Nov future spreads were -13 cents and -152 cents.
November 2014 soybean futures closed at $11.67 up 14 cents for the week with support at $11.51 and resistance at $11.76. Nearby soybean futures prices remain strong however caution needs to be employed when looking at deferred futures prices. Two key factors to watch going forward are: 1) the progress of the estimated recorded planted South American soybean crop; and 2) 2014 domestic planting intentions. Soybean harvest in Brazil will peak in March and provide additional competition for U.S. soybeans on the world market thereafter. Transportation and logistical issues will continue to hinder export sales in South America however they should have record supplies, barring a crop failure. Domestically, if soybean to corn price ratio remains above 3 record soybean planting could follow. Rallies in nearby futures contracts have pulled harvest futures prices up and may present an opportunity to establish futures prices above $11.50/bu for 2014 harvest. Downside price protection could be achieved by purchasing an $11.80 November 2014 Put Option which would cost 78 cents and set a $11.02 futures floor.
Cotton
December 2013 cotton futures closed at 75.21 down 1.95 cents for the week with support at 73.2 and resistance at 76.38. The USDA Crop Progress report estimated: cotton harvested at 68 percent compared to 82 percent last year and 75 percent for a 5-year average. In Tennessee, cotton defoliated was 99 percent compared to 100 percent last year and 100 percent for a 5-year average; cotton harvested was 57 percent compared to 97 percent last year and 91 percent for a 5-year average; and cotton condition was 65 percent good to excellent and 8 percent poor to very poor. Tennessee cotton harvest is still well behind average however significant progress has been made. Cotton adjusted world price (AWP) decreased 0.62 cents to 63.43 cents. Net sales reported by exporters for the 2013/14 marketing year from November 8th to 14th were down from last week at 305,100 bales of upland cotton, primarily to Turkey, China, Thailand, South Korea, and Indonesia. Net sales reported by exporters for the 2014/15 marketing year were 13,200 bales to Turkey. Exports for the same period were 71,100 bales primarily to China, Mexico, Thailand, Turkey, and Indonesia. Cotton exports are about 17 percent lower than last year at this time. March 2014 cotton futures are trading at 77.23 down 0.95 cents from last week. Dec/Mar and Dec/Dec future spreads were 2.02 cents and 0.65 cents.
December 2014 cotton futures closed at 75.86 down 0.65 cents for the week with support at 75.0 and resistance at 76.78. December 2014 cotton futures prices are challenging the 75 cent level if they break below 75 cents it is unclear as to where additional price support will be obtained. Not to sound like a broken record but until Chinese stocks, reserve purchase and import quota issues are adequately addressed there is very little upside in the cotton market. Looking to spring planting, if cotton prices are sub 75 cents/lb, look for continued reduction in cotton acreage in Tennessee and the U.S. Downside price protection could be obtained by purchasing a 76 cent December 2014 Put Option costing 5.24 cents establishing a 70.76 cent futures floor.
Wheat
December 2013 wheat futures closed at $6.49 up 5 cents for the week with support at $6.45 and resistance at $6.55. The USDA Crop Progress report estimated: winter wheat emerged at 89 percent compared to 83 percent last year and 85 percent for a 5-year average; and winter wheat condition at 63 percent good to excellent and 7 percent poor to very poor. In Tennessee, winter wheat planted was 76 percent compared to 95 percent last year and a 5-year average of 87 percent; winter wheat emerged was 44 percent compared to 66 percent last year and a 5-year average of 60 percent; and wheat condition was 84 percent good to excellent and 1 percent poor to very poor. Net sales reported by exporters for the 2013/14 marketing year from November 8th to 14th were above expectations at 22.7 million bushels, primarily to Japan, South Korea, Brazil, Nigeria, and the Philippines. Exports for the same period were 20.3 million bushels primarily to Brazil, Nigeria, China, Indonesia, and Japan. March 2014 wheat futures are trading at $6.57 up 3 cents from last week. Dec/Mar and Dec/Jul future spreads were 8 cents and 10 cents.
July 2014 wheat futures closed at $6.59 up 4 cents for the week with support at $6.54 and resistance at $6.63. In Tennessee, June/July cash forward contracts averaged $6.33/bu with a range of $5.83/bu and $6.76/bu at elevators and barge points. Late harvests for soybeans and cotton have impacted wheat planting progress, although it is too early to determine if wheat acres will decrease in Tennessee for the upcoming year. Downside price protection could be obtained by purchasing a $6.60 July 2014 Put Option costing 43 cents establishing a $6.17 futures floor.∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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