|
Production Estimates Predict Corn Stocks Will Shrink
DR. AARON SMITH
KNOXVILLE, TENN.
Corn, cotton, and wheat were up; soybeans were down for the week. On Tuesday May 12th the USDA released the May WASDE report. The report contained initial supply and demand estimates for the 2015/2016 marketing year. So how do estimates for the 2015/16 marketing year compare to the 2104/15 marketing year?
For corn, a major difference will be the opening stocks position. In 2014/15 beginning stocks were estimated at 1.232 billion bushels, for 2015/16 beginning stocks were estimated at 1.851, up over 50 percent. This increase was estimated to be partially offset by a 586 million bushel decrease in production. This reduction results from a decrease in harvested acreage of 1.4 million acres and a decline in average yield of 4.2 bu/acre, to 166.8 bu/acre. Corn use is projected up 138 million bushels from last year at 13.67 billion bushels. If the USDA’s estimates of domestic production and use come to fruition corn stocks will shrink 105 million bushels year-over-year. Looking at foreign production and use we see stocks continuing to build. Beginning stocks are estimated up 117 million bushels, production is estimated up 338 million bushels, and use is estimated up 448 million bushels. The net result is an increase in foreign ending stocks of 83 million bushels. The key to global corn outlook most likely resides in China where production, use, and stocks are estimated up substantially.
For soybeans, a far more bearish outlook emerges when comparing the two marketing years. Domestically, beginning stocks are estimated up 258 million bushels or 280 percent. Production is estimated down 119 million bushels from 2014/15 as a result of a 0.6 million acre increase in harvested acreage and a 1.8 bu/acre decrease in average yield. Total use is estimated to decline 12 million bushels from the previous year to 3.729 billion bushels. The net result of the changes to domestic supply and demand would be an increase in ending stocks of 150 million bushels to 500 million. Foreign soybean outlook is even more bearish as record production in South America could balloon foreign ending stocks to over 3.035 billion bushels, up 242 million. Foreign beginning stocks and production are estimated up 556 million and 121 million bushels, respectively. The bright spot in foreign soybean outlook resides in use which is estimated up 447 million bushels.
For cotton, some light may be emerging at the end of a long dark tunnel. The key issue in cotton markets has been the large and ever increasing global cotton stocks, principally held in China. 2015/16 cotton use is estimated to exceed production for the first time since 2009/10. Domestic production is estimated down 1.82 million bales as a result of harvested acreage and yield being down 0.75 million acres and 29 lbs/acre, respectively. Domestic use is estimated up 0.15 million bales. There is no estimated change in domestic stocks year-to-year. Foreign cotton production is estimated down almost across the board with China projected to have a 3 million bale reduction. Total foreign use is estimated up 3.69 million bales, to over 111 million. The net result is a reduction in foreign cotton stocks of 3.96 million. This may only be a small step on the course to higher prices.
For wheat, domestic beginning stocks and production are up 119 million and 61 million bushels, respectively. Use is estimated up 87 million bushels to 2.144 billion, resulting in a net increase in domestic stocks for the 2015/16 marketing year of 84 million bushels to 793 million bushels. Total foreign production is estimated down 338 million bushels primarily from decreases in the EU, Russia, Ukraine, and India. Total foreign use is estimated up 19 million bushels to 4.842 billion. Foreign ending stocks are estimated at 6.678 billion bushels almost unchanged from 2014/15.
These estimates are an initial look at the upcoming 2015/16 marketing year and will change dramatically as weather, economic, and geopolitical changes occur; however looking forward at this moment in time we are likely looking at commodity prices trading mostly sideways to down for the upcoming year.
Corn
July 2015 corn futures closed at $3.65 up 2 cents from last week. This week July 2015 corn futures prices traded between $3.57 and $3.71. Across Tennessee average basis (cash price- nearby future price) strengthened or remained unchanged at Memphis, Northwest Barge Points, Lower-middle, and Upper-middle Tennessee and weakened in Northwest Tennessee. Overall, average basis for the week ranged from 1 under to 40 over the July futures contract with an average of 15 over at the end of the week. Ethanol production for the week ending May 8th was 912,000 barrels per day up 25,000 barrels per day from last week. Ending ethanol stocks were 20.299 million barrels down 463,000 barrels from last week. Corn net sales reported by exporters from May 1st to 7th were below expectations with net sales of 14.6 million bushels for the 2014/15 marketing year and 0.1 million bushels for the 2015/16 marketing year. Exports for the same time period were down from last week at 43.7 million bushels. Corn export sales and commitments were 86 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 93 percent. Jul/Sep and Jul/Dec future spreads were 7 cents and 17 cents, respectively.
September 2015 futures closed at $3.72 up 4 cents from last week. September 2015 cash forward contracts averaged $3.61 with a range of $3.45 to $3.88. Nationally, this week’s Crop Progress report estimated corn planted at 75 percent compared to 55 percent last week, 55 percent last year, and a 5-year average of 57 percent; and corn emerged at 29 percent compared to 9 percent last week, 16 percent last year, and a 5-year average of 24 percent. In Tennessee, corn planted was estimated at 84 percent compared to 51 percent last week, 84 percent last year, and a 5-year average of 76 percent; and corn emerged at 41 percent compared to 13 percent last week, 50 percent last year, and a 5-year average of 59 percent. Downside price protection could be obtained by purchasing a $3.80 September 2015 Put Option costing 23 cents establishing a $3.57 futures floor.
Soybeans
July 2015 soybean futures closed at $9.53 down 23 cents since last week. This week July 2015 soybean futures traded between $9.50 and $9.82. July soybean to corn price ratio was 2.61 at the end of the week. For the week, average soybean basis strengthened or remained unchanged at Northwest Barge Points, Northwest, Memphis, Upper-middle, and Lower-middle Tennessee. Basis ranged from 10 under to 40 over the July futures contract at elevators and barge points. Average basis at the end of the week was 17 over the July futures contract. Net sales reported by exporters were below expectations with net sales of 5 million bushels for the 2014/15 marketing year and net sales of 3.2 million bushels for the 2015/16 marketing year. Exports for the same period were up from last week at 9.2 million bushels. Soybean export sales and commitments were 103 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 99 percent. August 2015 soybean futures closed at $9.46 down 28 cents since last week. Jul/Aug and Jul/Nov future spreads were -7 cent and -19 cents, respectively.
November 2015 futures closed at $9.34 down 18 cents from last week. Nov/Sep 2015 soybean to corn price ratio was 2.51. October/November 2015 cash forward contracts averaged $9.30 with a range of $9.01 to $9.60 at elevators and barge points. Nationally, this week’s Crop Progress report estimated soybeans planted at 31 percent compared to 13 percent last week, 18 percent last year, and a 5-year average of 20 percent. In Tennessee, soybeans planted were estimated at 20 percent compared to 4 percent last week, 12 percent last year, and a 5-year average of 12 percent. Downside price protection could be achieved by purchasing a $9.40 November 2015 Put Option which would cost 50 cents and set an $8.90 futures floor.
Cotton
July 2015 cotton futures closed at 66.84 up 0.68 cents since last week. July 2015 cotton futures traded between 64.57 and 66.87 cents this week. Adjusted world price (AWP) decreased 0.70 cents to 51.84 cents per pound. Net sales reported by exporters were up from last week with net sales of 48,800 bales for the 2014/15 marketing year and 79,300 bales for the 2015/16 marketing year. Exports for the same period were down from last week at 233,400 bales. Upland cotton export sales were 104 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 102 percent. October 2015 cotton futures closed at 68.11 up 2.05 cents since last week. Jul/Oct and Jul/Dec futures spreads were 1.27 cents and -0.02 cents, respectively.
December 2015 cotton futures closed at 66.82 up 0.88 cents since last week. Nationally, this week’s Crop Progress report estimated cotton planted at 26 percent compared to 17 percent last week, 28 percent last year, and a 5-year average of 32 percent. In Tennessee, cotton planted was estimated at 21 percent compared to 7 percent last week, 23 percent last year, and a 5-year average of 18 percent. Downside price protection could be obtained by purchasing a 67 cent December 2015 Put Option costing 3.34 cents establishing a 63.66 cent futures floor.
Wheat
July 2015 wheat futures closed at $5.11 up 30 cents since last week. July wheat futures traded between $4.71 and $5.19 this week. July wheat to corn price ratio was 1.40. In Memphis, old crop cash wheat traded between $4.40 and $4.74 last week. Net sales reported by exporters were below expectations with net sales of 4.2 million bushels for the 2014/15 marketing year and net sales of 5.2 million bushels for the 2015/16 marketing year. Exports for the same period were up from last week at 10.9 million bushels. Wheat export sales were 93 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 104 percent. Nationally, this week’s Crop Progress report estimated winter wheat condition at 44 percent good to excellent and 20 percent poor to very poor; winter wheat headed was estimated at 56 percent compared to 43 percent last week, 42 percent last year, and a 5-year average of 45 percent; spring wheat planted was estimated at 87 percent compared to 75 percent last week, 33 percent last year, and a 5-year average of 51 percent; and spring wheat emerged was estimated at 54 percent compared to 30 percent last week, 11 percent last year, and a 5-year average of 25 percent. In Tennessee, winter wheat condition was estimated at 82 percent good to excellent and 2 percent poor to very poor; winter wheat jointing was estimated at 98 percent compared to 93 percent last week and 96 percent last year; and winter wheat headed was estimated at 79 percent compared to 47 percent last week, 63 percent last year, and a 5-year average of 81 percent. June/July 2015 cash forward contracts averaged $4.71 with a range of $4.21 to $5.20 at elevators and barge points.
September 2015 wheat futures closed at $5.17 up 28 cents since last week. Jul/Sept and Jul/Jul future spreads were 6 cents and 50 cents, respectively. July 2016 wheat futures closed at $5.61 up 24 cents since last week. Downside price protection could be obtained by purchasing a $5.70 July 2016 Put Option costing 61 cents establishing a $5.09 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
|
|