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Weather Provides Fuel For Commodity Price Rise
DR. AARON SMITH
KNOXVILLE, TENN.
Corn, soybeans, cotton, and wheat were up for the week. December corn is now trading above $4.00 for the first time since April 23rd; November soybeans rallied over 45 cents this week to close at $9.86, its highest level since March 2nd; July wheat traded above $5.60 for the first time since early January; and December cotton breached its 13 week high of 66.99 cents, closing at 67.16. Weather provided the primary fuel for the futures market rallies in corn, soybeans, and wheat. Excessive rain has affected planting and crop conditions in a large part of the Corn Belt. Compounding the problem is additional rain forecast for the next two weeks which will make replanting difficult and add to the current adverse growing conditions. Wheat was especially weather driven this week with wet conditions in the US hampering harvest and dry conditions in key spring wheat production regions in Canada, Russia, and the EU. As long as the current wet weather forecasts persist prices should continue to remain bullish. For producers that have limited production priced or have not priced 2015 production this rally provides an excellent opportunity to establish a price on some of your anticipated corn and soybean production. For those that have already established a price on a comfortable amount of production a wait-and-see approach may be warranted.
Given the current weather concerns, the USDA’s June 30th acreage report will likely not have the same impact, in either direction, as last year’s Acreage report when: November 2014 soybeans dropped 74 ½ cents from $12.26 to $11.51 ½; December corn dropped 19 ¼ cents from $4.44 ½ to $4.23 ½; and July wheat dropped 18 ¾ cents from $5.83 ½ to $5.55 ¾. The June 30th Acreage report provides planted acreage results based primarily on producer surveys in the first two weeks of June. As such, the results of the producer survey will likely not capture any acres that were flooded/replanted/prevented planted after the surveys were conducted. The report will still provide estimated acreage, however weather related factors will have to be fully considered when interpreting the report’s results. The more interesting report may be the June 30th Quarterly Stocks report. The Quarterly Stocks report will provide estimates of implied use year-to-date and remaining stocks. If stocks are tighter than anticipated, particularly in soybeans, this could provide additional fuel to the rally of the past two weeks. Estimated 2014/15 marketing year ending stocks have fallen from 475 million bushels on the September WASDE to 330 million bushels on the June WASDE.
Corn
July 2015 corn futures closed at $3.85 up 32 from last week. This week July 2015 corn futures prices traded between $3.50 and $3.90. Across Tennessee average basis (cash price- nearby future price) remained unchanged or strengthened at Memphis, Northwest Barge Points, Lower-middle, and Upper-middle Tennessee and weakened in Northwest Tennessee. Overall, average basis for the week ranged from even to 41 over the July futures contract with an average of 15 over at the end of the week. Ethanol production for the week ending June 19th was 994,000 barrels per day up 14,000 barrels per day from last week. Ending ethanol stocks were 19.840 million barrels down 878,000 barrels from last week. Corn net sales reported by exporters from June 12th to 18th were within expectations with net sales of 19.6 million bushels for the 2014/15 marketing year and 11.7 million bushels for the 2015/16 marketing year. Exports for the same time period were up from last week at 44.3 million bushels. Corn 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 100 percent. Jul/Sep and Jul/Dec future spreads were 7 cents and 17 cents, respectively.
September 2015 corn futures closed at $3.92 up 34 cents since last week. September 2015 cash forward contracts averaged $3.67 with a range of $3.44 to $4.02. Nationally, this week’s Crop Progress report estimated corn condition at 71 percent good to excellent and 6 percent poor to very poor. In Tennessee, corn condition was estimated at 79 percent good to excellent and 5 percent poor to very poor; and corn silking at 6 percent compared to 7 percent last year and a 5-year average of 23 percent. Downside price protection could be obtained by purchasing a $3.95 September 2015 Put Option costing 22 cents establishing a $3.73 futures floor.
Soybeans
July 2015 soybean futures closed at $10.02 up 31 cents since last week. This week July 2015 soybean futures traded between $9.71 and $10.24. July soybean to corn price ratio was 2.60 at the end of the week. For the week, average soybean basis strengthened at Northwest Barge Points, Memphis, Northwest, and Lower-middle Tennessee and weakened in Upper-middle Tennessee. Basis ranged from 10 under to 62 over the July futures contract at elevators and barge points. Average basis at the end of the week was 23 over the July futures contract. Net sales reported by exporters were above expectations with net sales of 4.4 million bushels for the 2014/15 marketing year and net sales of 7.4 million bushels for the 2015/16 marketing year. Exports for the same period were down from last week at 5.5 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 102 percent. August 2015 soybean futures closed at $9.97 up 42 cents since last week. Jul/Aug and Jul/Nov future spreads were -5 cents and -16 cents, respectively.
November 2015 futures closed at $9.86 up 47 cents from last week. Nov/Sep 2015 soybean to corn price ratio was 2.52. October/November 2015 cash forward contracts averaged $9.59 with a range of $9.26 to $9.93 at elevators and barge points. Nationally, this week’s Crop Progress report estimated soybean condition at 65 percent good to excellent and 8 percent poor to very poor; soybeans planted at 90 percent compared to 87 percent last week, 95 percent last year, and a 5-year average of 95 percent; and soybeans emerged at 84 percent compared to 75 percent last week, 89 percent last year, and a 5-year average of 87 percent. In Tennessee, soybean condition was estimated at 70 percent good to excellent and 6 percent poor to very poor; soybeans planted were estimated at 82 percent compared to 72 percent last week, 77 percent last year, and a 5-year average of 85 percent; and soybeans emerged at 64 percent compared to 55 percent last week, 61 percent last year, and a 5-year average of 69 percent. Downside price protection could be achieved by purchasing a $10.00 November 2015 Put Option which would cost 56 cents and set a $9.44 futures floor.
Cotton
July 2015 cotton futures closed at 67.16 up 3.84 cents since last week. July 2015 cotton futures traded between 62.5 and 67.16 cents this week. Adjusted world price (AWP) decreased 0.29 cents to 50.22 cents per pound. Delta upland cotton spot price quotes for June 25 were 63.36 to 66.11 cents/lb. Net sales reported by exporters were down from last week with net sales of 60,500 bales for the 2014/15 marketing year and 52,700 bales for the 2015/16 marketing year. Exports for the same period were down from last week at 187,600 bales. Upland cotton export sales were 107 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 108 percent. October 2015 cotton futures closed at 68.21 up3.15 cents since last week. Jul/Oct and Jul/Dec futures spreads were 1.05 cents and 0.35 cents, respectively.
December 2015 cotton futures closed at 67.51 up 3.61cents since last week. Nationally, this week’s Crop Progress report estimated cotton condition at 55 percent good to excellent and 9 percent poor to very poor; cotton planted at 94 percent compared to 91 percent last week, 99 percent last year, and a 5-year average of 100 percent; and cotton squaring at 22 percent compared to 13 percent last week, 23 percent last year, and a 5-year average of 26 percent. In Tennessee, cotton condition was estimated at 52 percent good to excellent and 10 percent poor to very poor; cotton planted at 100 percent compared to 99 percent last week, 100 percent last year, and a 5-year average of 100 percent; and cotton squaring at 20 percent compared to 9 percent last week, 37 percent last year, and a 5-year average of 28 percent. Downside price protection could be obtained by purchasing a 68 cent December 2015 Put Option costing 3.65 cents establishing a 64.35 cent futures floor.
Wheat
July 2015 wheat futures closed at $5.62 up 74 cents since last week. July wheat futures traded between $4.87 and $5.66 this week. July wheat to corn price ratio was 1.46. Net sales reported by exporters were within expectations with net sales of 16.0 million bushels for the 2015/16 marketing year and net sales of 0.047 million bushels for the 2016/17 marketing year. Exports for the same period were up from last week at 14.3 million bushels. Wheat export sales were 22 percent of the USDA estimated total annual exports for the 2015/16 marketing year (June 1 to May 31), compared to a 5-year average of 26 percent. Nationally, this week’s Crop Progress report estimated winter wheat condition at 41 percent good to excellent and 22 percent poor to very poor; winter wheat harvested at 19 percent compared to 11 percent last week, 31 percent last year, and a 5-year average of 31 percent; spring wheat condition at 71 percent good to excellent and 4 percent poor to very poor; and spring wheat headed at 23 percent compared to 9 percent last year and a 5-year average of 15 percent. In Tennessee, winter wheat condition was estimated at 79 percent good to excellent and 3 percent poor to very poor; winter wheat coloring at 98 percent compared to 96 percent last week, 98 percent last year, and a 5-year average of 99 percent; winter wheat mature at 89 percent compared to 61 percent last week, 82 percent last year, and a 5-year average of 83 percent; and winter wheat harvested at 57 percent compared to 10 percent last week, 29 percent last year, and a 5-year average of 60 percent. June/July 2015 cash forward contracts averaged $4.97 with a range of $4.50 to $5.29 at elevators and barge points.
September 2015 wheat futures closed at $5.68 up 76 cents since last week. Jul/Sept and Jul/Jul future spreads were 6 cents and 27 cents, respectively. July 2016 wheat futures closed at $5.89 up 53 cents since last week. Downside price protection could be obtained by purchasing a $5.90 July 2016 Put Option costing 68 cents establishing a $4.22 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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