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Long Term Soybean Outlook Remains Boarish
DR. AARON SMITH
KNOXVILLE, TENN.
Corn, soybeans, and cotton were down; wheat was up for the week. September corn futures have stayed above the contract low established back on October 1, 2014 of $3.54 ¾. Nationally, planting and growing conditions have been excellent year-to-date, so corn futures being able to hold this key level of support is a positive. That being said, if above average growing conditions persist and acreage is affirmed at or above current USDA estimates this threshold could be breached. This week November soybean futures fell below the previously established contract low of $9.27 ½ established back on September 29, 2014. The long term outlook for soybeans remains decidedly bearish as a record South American crop, high US dollar (relative to the Brazilian Real and Argentine Peso), and excellent planting and growing conditions to date continue to provide downward price pressure. There could be potentially more bearish news on the way as many industry analysts have higher acreage estimates than the May 2015 WASDE estimate of 84.6 million acres planted. Some estimates have soybean acreage of 87-88 million acres planted. A 3-million acre increase in soybean acreage could easily add over 100 million bushels to domestic ending stocks, which could be disastrous for prices. As such, producers should strongly consider pricing additional 2015 production between now and June 30th, when the USDA will release its Acreage report. Selling any rallies or establishing a price floor, though options or another marketing alternative, are very prudent decisions in the current soybean marketing environment. December cotton futures gave back most of last week’s gains, as rain in Texas and Oklahoma continue to provide drought relief to the US’s principle cotton growing region. In 2015, wheat-to-corn price ratio has been between 1.22 and 1.43 (July wheat / July corn) with an average of 1.33. Currently, July wheat-to-corn price ratio is 1.43. Weather/quality concerns have pushed wheat prices higher the past 13 trading sessions, from $4.66 ½ to $5.15. At the same time July corn futures have dropped from $3.62 ¾ to $3.60. To capitalize on the price ratio returning to near average levels, for 2015, purchase July corn and sell July wheat.
Corn
July 2015 corn futures closed at $3.60 down 5 cents from last week. This week July 2015 corn futures prices traded between $3.58 and $3.71. Across Tennessee average basis (cash price- nearby future price) strengthened or remained unchanged at Memphis, Northwest Barge Points, and Upper-middle Tennessee and weakened in Northwest and Lower-middle Tennessee. Overall, average basis for the week ranged from 8 under to 40 over the July futures contract with an average of 12 over at the end of the week. Ethanol production for the week ending May 15th was 958,000 barrels per day up 46,000 barrels per day from last week. Ending ethanol stocks were 20.434 million barrels up 135,000 barrels from last week. Corn net sales reported by exporters from May 8th to 14th were above expectations with net sales of 32 million bushels for the 2014/15 marketing year and 3.2 million bushels for the 2015/16 marketing year. Exports for the same time period were down from last week at 42.5 million bushels. Corn 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 95 percent. Jul/Sep and Jul/Dec future spreads were 6 cents and 17 cents, respectively.
September 2015 futures closed at $3.66 down 6 cents from last week. September 2015 cash forward contracts averaged $3.65 with a range of $3.47 to $3.95. Nationally, this week’s Crop Progress report estimated corn planted at 85 percent compared to 75 percent last week, 71 percent last year, and a 5-year average of 75 percent; and corn emerged at 56 percent compared to 29 percent last week, 32 percent last year, and a 5-year average of 40 percent. In Tennessee, corn planted was estimated at 93 percent compared to 84 percent last week, 92 percent last year, and a 5-year average of 86 percent; and corn emerged at 67 percent compared to 41 percent last week, 73 percent last year, and a 5-year average of 72 percent. Downside price protection could be obtained by purchasing a $3.70 September 2015 Put Option costing 21 cents establishing a $3.49 futures floor.
Soybeans
July 2015 soybean futures closed at $9.24 down 29 cents since last week. This week July 2015 soybean futures traded between $9.22 and $9.64. July soybean to corn price ratio was 2.57 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 35 over the July futures contract at elevators and barge points. Average basis at the end of the week was 19 over the July futures contract. Net sales reported by exporters were below expectations with net sales of 6.1 million bushels for the 2014/15 marketing year and net sales of 2.8 million bushels for the 2015/16 marketing year. Exports for the same period were up from last week at 9.9 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 100 percent. August 2015 soybean futures closed at $9.16 down 30 cents since last week. Jul/Aug and Jul/Nov future spreads were -8 cents and -17 cents, respectively.
November 2015 futures closed at $9.07 down 27 cents from last week. Nov/Sep 2015 soybean to corn price ratio was 2.48. October/November 2015 cash forward contracts averaged $9.17 with a range of $8.88 to $9.45 at elevators and barge points. Nationally, this week’s Crop Progress report estimated soybeans planted at 45 percent compared to 31 percent last week, 31 percent last year, and a 5-year average of 36 percent; and soybeans emerged at 13 percent compared to 8 percent last year and a 5-year average of 12 percent. In Tennessee, soybeans planted were estimated at 37 percent compared to 20 percent last week, 22 percent last year, and a 5-year average of 22 percent; and soybeans emerged at 12 percent compared to 0 percent last week, 9 percent last year, and a 5-year average of 10 percent. Downside price protection could be achieved by purchasing a $9.20 November 2015 Put Option which would cost 52 cents and set an $8.68 futures floor.
Cotton
July 2015 cotton futures closed at 63.3 down 3.54 cents since last week. July 2015 cotton futures traded between 63.28 and 66.93 cents this week. Adjusted world price (AWP) increased 0.16 cents to 52 cents per pound. Net sales reported by exporters were down from last week with net sales of 59,300 bales for the 2014/15 marketing year and 36,200 bales for the 2015/16 marketing year. Exports for the same period were up from last week at 343,300 bales. Upland cotton export sales were 105 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 103 percent. October 2015 cotton futures closed at 65.22 down 2.89 cents since last week. Jul/Oct and Jul/Dec futures spreads were 1.92 cents and 1.08 cents, respectively.
December 2015 cotton futures closed at 64.38 down 2.44 cents since last week. Nationally, this week’s Crop Progress report estimated cotton planted at 35 percent compared to 26 percent last week, 44 percent last year, and a 5-year average of 46 percent. In Tennessee, cotton planted was estimated at 50 percent compared to 21 percent last week, 45 percent last year, and a 5-year average of 36 percent. Downside price protection could be obtained by purchasing a 65 cent December 2015 Put Option costing 3.59 cents establishing a 61.41 cent futures floor.
Wheat
July 2015 wheat futures closed at $5.15 up 4 cents since last week. July wheat futures traded between $5.03 and $5.30 this week. July wheat to corn price ratio was 1.43. In Memphis, old crop cash wheat traded between $4.70 and $4.82 this week. Net sales reported by exporters were below expectations with net sales of 2.7 million bushels for the 2014/15 marketing year and net sales of 4.7 million bushels for the 2015/16 marketing year. Exports for the same period were up from last week at 13.6 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 105 percent. Nationally, this week’s Crop Progress report estimated winter wheat condition at 45 percent good to excellent and 19 percent poor to very poor; winter wheat headed was estimated at 68 percent compared to 56 percent last week, 55 percent last year, and a 5-year average of 56 percent; spring wheat planted was estimated at 94 percent compared to 87 percent last week, 47 percent last year, and a 5-year average of 65 percent; and spring wheat emerged was estimated at 67 percent compared to 54 percent last week, 22 percent last year, and a 5-year average of 38 percent. In Tennessee, winter wheat condition was estimated at 85 percent good to excellent and 2 percent poor to very poor; and winter wheat headed was estimated at 95 percent compared to 79 percent last week, 87 percent last year, and a 5-year average of 94 percent. June/July 2015 cash forward contracts averaged $5.07 with a range of $4.50 to $5.35 at elevators and barge points.
September 2015 wheat futures closed at $5.23 up 6 cents since last week. Jul/Sept and Jul/Jul future spreads were 8 cents and 49 cents, respectively. July 2016 wheat futures closed at $5.64 up 3 cents since last week. Downside price protection could be obtained by purchasing a $5.70 July 2016 Put Option costing 62 cents establishing a $5.08 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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