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Prices Mixed On Cotton And Soybeans
DR. AARON SMITH
KNOXVILLE, TENN.
Corn was up; cotton and soybeans were mixed; and wheat was down for the week. The unemployment rate fell to 7 percent the lowest level since November 2008. Grain markets were reasonably quite coming out of the Thanksgiving holiday.
Corn
March 2014 corn futures closed at $4.34 up 10 cents from last week with support at $4.26 and resistance at $4.40. Across Tennessee basis (cash price- nearby future price) strengthened in four out five regions. Overall basis at the end of the week was between 16 under to 26 over the December Futures Contract. Corn net sales reported by exporters for the 2013/14 marketing year from November 22nd to 28th were 23.4 million bushels, primarily to China, South Korea, Cuba, Mexico, Japan and Peru. Exports for the same time period were 41 million bushels primarily to China, Mexico, Japan, South Korea, and Guatemala. Corn export sales are 73 percent (5-year average is 50 percent) of the USDA estimated total annual exports for the 2013/14 marketing year (September 1 to August 31). Ethanol production for the week ending November 29th was 913,000 barrels per day down 14,000 barrels per day. Ending ethanol stocks were 15.124 million barrels up 102,000 barrels. May 2014 corn futures were trading at $4.42 up 10 cents from last week. Mar/May and Mar/Sep future spreads were 8 cents and 22 cents.
September 2014 corn futures closed at $4.56 up 10 cents from last week with support at $4.49 and resistance at $4.59. 2014 harvest corn future prices continue to hold above $4.50/bu. Producers should look to price some production early this year as there is more downside price risk in the corn market than upside potential. As domestic and foreign production uncertainty is removed from the market prices are likely to drop, unless there is a drought or mass crop failure. South American corn planting is complete and growing conditions to date have been excellent if this continues into 2014 prices could fall dramatically. In the corn market this year protecting against a potential price decrease is strongly encouraged. Downside price protection could be obtained by purchasing a $4.60 September 2014 Put Option costing 38 cents establishing a $4.22 futures floor.
Soybeans
January 2014 soybean futures closed at $13.25 down 11 cents for the week with support at $13.11 and resistance at $13.34. Soybean to corn price ratio was 3.05 at the end of the week. In Tennessee, soybean basis was between 15 under and 40 over the January futures contract at elevators and barge points. Average basis was 13 over. Net sales reported by exporters for the 2013/14 marketing year from November 22nd to 28th were within expectations at 29.6 million bushels, primarily to Spain, Mexico, the Netherlands, and Thailand. Net sales reported by exporters for the 2014/15 marketing year were 13.1 million bushels, primarily to China and Mexico. Exports for the same period were 69 million bushels primarily to China, Thailand, the Netherlands, Spain, Japan, and Taiwan. Soybean export sales are 95 percent (5-year average is 69 percent) of the USDA estimated total annual exports for the 2013/14 marketing year (September 1 to August 31). March 2014 soybean futures were trading at $13.10. Jan/Mar and Jan/Nov future spreads were -15 cents and -161 cents.
November 2014 soybean futures closed at $11.64 up 17 cents for the week with support at $11.54 and resistance at $11.69. November 2014 soybean prices closed up for the week after last week’s 20 cent decline. Harvest prices have a substantial discount in them from the nearby contracts. This is largely due to estimated record Brazilian planted acreage and the potential for record soybean acres planted domestically. Pricing some 2014 soybean production at this time is a safe move; however prior to domestic planting there could be some upward movement in harvest futures prices should weather conditions in South America change or export demand continues to exceed expectations. Downside price protection could be achieved by purchasing an $11.80 November 2014 Put Option which would cost 80 cents and set an $11.00 futures floor.
Cotton
March 2014 cotton futures closed at 80.41 up 1.06 cents for the week with support at 78.24 and resistance at 81.60. Cotton adjusted world price (AWP) increased 0.58 cents to 64.49 cents. In Tennessee adverse weather continues to plague the last portion of the cotton harvest. Net sales reported by exporters for the 2013/14 marketing year from November 22nd to 28th were down from last week at 248,600 bales of upland cotton, primarily to Turkey, China, Indonesia, Brazil and Peru. Net sales reported by exporters for the 2014/15 marketing year were 18,000 bales to Turkey. Exports for the same period were 106,500 bales primarily to China, Mexico, Turkey, Indonesia, and Vietnam. Cotton export sales are 66 percent (5-year average is 70 percent) of the USDA estimated total annual exports for the 2013/14 marketing year (August 1 to July 31). Quality concerns and high prices for Chinese reserve cotton continues to provide some price support to nearby cotton futures. Upside price is still limited by the large reserves that are held in China. May 2014 cotton futures are trading at 80.66 up 0.81 cents from last week. Mar/May and Mar/Dec future spreads were 0.25 cents and -3.77 cents.
December 2014 cotton futures closed at 76.64 down 0.32 cents for the week with support at 76.36 and resistance at 76.92. 2014 harvest prices have been trading between 75 and 78 cents for over a month. If futures continue to trade in this range it is unlikely that we will see an appetite to increase planted acreage in Tennessee. Any rallies in the market above 80 cents should be viewed as an opportunity to establish price on 2014 production. 2014 harvest cotton prices are very close to where 2013 harvest prices were at this time last year. While it is doubtful that pre-planting prices approach the near 90 cent level of last year there is likely going to be an opportunity to price some production above 80 cents, these opportunities should not be passed if cotton is to remain in your rotation. Chinese cotton policy is likely to undergo changes for the 2014/15 marketing year as such an announcement on the direction of the policy may occur as early as this spring. When Chinese policy changes are announced there is the potential for a significant change in cotton prices. Downside price protection could be obtained by purchasing a 77 cent December 2014 Put Option costing 5.71 cents establishing a 71.29 cent futures floor.
Wheat
March 2014 wheat futures closed at $6.51 down 17 cents for the week with support at $6.46 and resistance at $6.57. Wheat prices approached the 52 week low on news of a larger than originally estimated Canadian wheat crop and a marketing year low in export sales for last week. Net sales reported by exporters for the 2013/14 marketing year from November 22nd to 28th were below last week at 8.4 million bushels, primarily to Thailand, Mexico, the Philippines, and Columbia. Exports for the same period were 13.6 million bushels primarily to Thailand, Nigeria, China, Taiwan, and Brazil. Wheat export sales are 76 percent (5-year average is 70 percent) of the USDA estimated total annual exports for the 2013/14 marketing year (June 1 to May 31). May 2014 wheat futures are trading at $6.56 down 17 cents from last week. Mar/May and Mar/Jul future spreads were 5 cents and 3 cents.
July 2014 wheat futures closed at $6.54 down 16 cents for the week with support at $6.49 and resistance at $6.59. Early estimates of winter wheat planted acreage in Tennessee are 550,000 to 620,000 acres. In Tennessee, June/July cash forward contracts averaged $6.45/bu with a range of $5.84/bu to $6.88/bu at elevators and barge points. 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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