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Low Cotton Prices May Spur Acreage Reduction
DR. AARON SMITH
KNOXVILLE, TENN.
Cotton, soybeans, and wheat were up; corn was mixed for the week. Soybeans rallied this week partially due to lower than anticipated planted acreage estimates from the 2015 USDA Outlook Conference last week and the Brazilian trucker protests. November 2015 soybean futures opened February at $9.45/bu and closed at $9.97/bu (a 52 cent increase). This latest rally in soybean markets presents an excellent opportunity for producers to begin pricing some 2015 production. Large global supplies and the potential for significant upward revisions in domestic soybean acreage for 2015 remain in the background and could trigger a reversal for soybean prices in the near future. December 2015 corn closed the month up 17 cents (opening at $4.00 and closing the month at $4.17). Similar to soybeans pricing some 2015 production, near $4.20/bu for corn, is strongly encouraged as futures prices near this level will result in above breakeven farm level prices for many Tennessee producers. However, producers do need to be cognizant of not over pricing their estimated production, thus, trading price risk for production risk. July 2015 wheat futures opened the month at $5.11 and closed at $5.16 (up 5 cents for the month). It remains to be seen how the winter wheat crop has made out with the persistent low temperatures in many regions. December 2015 cotton futures closed the month up 3.36 cents at 65.85 cents/lb. Cotton prices remain well below most producers breakeven prices, as such it is likely that we will see another reduction in cotton acreage in Tennessee for 2015.
The deadline to reallocate commodity bases and update payment yields under the 2014 Farm Bill was today. FSA offices will remain very busy as they continue to assist producers with their ARC-county, ARC-individual, and PLC sign up, so it is strongly encouraged to book appoints at your local FSA offices if you have not already done so. Producers are strongly encouraged to make program elections for their FSA farms, as failure to do so by the March 31st deadline will result in forgoing any potential payments for 2014 and being defaulted into PLC for 2015 and beyond.
Corn
March 2015 corn futures closed at $3.84 down 1 cent a bushel since last week. Across Tennessee average basis (cash price- nearby future price) strengthened or remained unchanged at Memphis, Northwest Barge Points, Lower-middle, Upper-middle, and Northwest Tennessee. Overall average basis for the week ranged from 6 under to 32 over the March futures contract with an average of 17 over at the end of the week. Ethanol production for the week ending February 20th was 947,000 barrels per day down 17,000 barrels per day from last week. Ending ethanol stocks were 21.594 million barrels up 510,000 barrels from last week. This week March 2015 corn futures prices traded between $3.71 and $3.87. Mar/May and Mar/Sep future spreads were 9 cents and 24 cents, respectively.
May 2015 corn futures closed at $3.93 the same as last week. Corn net sales reported by exporters from February 13th to 19th were below expectations with net sales of 28.1 million bushels for the 2014/15 marketing year and 5.8 million bushels for the 2015/16 marketing year. Exports for the same time period were up from last week at 34.1 million bushels. Corn export sales and commitments were 78 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 74 percent. September 2015 cash forward contracts averaged $3.91 with a range of $3.70 to $4.24. September 2015 futures closed at $4.08 up 1cent from last week. Downside price protection could be obtained by purchasing a $4.10 September 2015 Put Option costing 32 cents establishing a $3.78 futures floor.
Soybeans
March 2015 soybean futures closed at $10.30 up 31 cents since last week. March soybean to corn price ratio was 2.68 at the end of the week. For the week, average soybean basis weakened at Memphis, Northwest, and Lower-middle Tennessee and strengthened at Northwest Barge Points and Upper-middle Tennessee. Basis ranged from 10 under to 50 over the March futures contract at elevators and barge points. Average basis at the end of the week was 25 over the March futures contract. This week March 2015 soybean futures traded between $9.92 and $10.35.
May 2015 soybean futures closed at $10.31 up 29 cents since last week. Net sales reported by exporters were within expectations with net sales of 16.9 million bushels for the 2014/15 marketing year and 1.3 million bushels for the 2015/16 marketing year. Exports for the same period were down from last week at 40.5 million bushels. Soybean export sales and commitments were 97 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 92 percent. Mar/May and Mar/Nov future spreads were 1 cent and -33 cents. October/November 2015 cash forward contracts averaged $9.77 with a range of $9.49 to $10.03 at elevators and barge points. Nov/Sep 2015 soybean to corn price ratio was 2.44. November 2015 futures closed at $9.97 up 17 cents from last week. Downside price protection could be achieved by purchasing a $10.00 November 2015 Put Option which would cost 68 cents and set a $9.32 futures floor.
Cotton
March 2015 cotton futures closed at 64.73 up 0.06 cents since last week. Cotton adjusted world price (AWP) increased 0.72 cents from last week to 49.48 cents. March 2015 cotton futures traded between 63.90 and 67.55 cents this week.
May 2015 cotton futures closed at 64.93 up 0.27 cents since last week. Net sales reported by exporters were up from last week at 71,400 bales for the 2014/15 marketing year and 65,900 bales for the 2015/16 marketing year. Exports for the same period were down from last week at 192,900 bales. Upland cotton export sales were 96 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 91 percent. Mar/May and Mar/Dec futures spread were 0.2 cents and 1.12 cents. December 2015 cotton futures closed at 65.85 up 0.37 cents since last week. Downside price protection could be obtained by purchasing a 66 cent December 2015 Put Option costing 4.25 cents establishing a 61.75 cent futures floor.
Wheat
March 2015 wheat futures closed at $5.17 up 7 cents since last week. March wheat futures traded between $4.91 and $5.23 this week. March wheat to corn price ratio was 1.35. Mar/May and Mar/July future spreads were -4 cents and -1 cent, respectively. In Memphis, old crop cash wheat traded between $4.57 and $4.66 this week.
May 2015 wheat futures closed at $5.13 up 6 cents since last week. Net sales reported by exporters were above expectations at 12.1 million bushels for the 2014/15 marketing year and 4.8 million bushels for the 2015/16 marketing year. Exports for the same period were up from last week at 18.1 million bushels. Wheat export sales were 88 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 90 percent. June/July 2015 cash forward contracts averaged $4.99 with a range of $4.42 to $5.24 at elevators and barge points. July 2015 wheat futures closed at $5.16 up 5 cents since last week. Downside price protection could be obtained by purchasing a $5.20 July 2015 Put Option costing 32 cents establishing a $4.88 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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