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Present Prices Could Trigger Further Price Decline
DR. AARON SMITH
KNOXVILLE, TENN.
Corn, soybeans, cotton, and wheat were down for the week. This week, December corn and November soybean futures continued price declines that started after last week’s highs as weather remained favorable in most major production areas. Currently, the markets are approaching key resistance levels in December corn and November soybean futures at $4.00 and $9.60, respectively. Failure to hold prices above these thresholds could facilitate an additional futures price decline. In Tennessee, additional weakness in prices was prevalent as basis tumbled across the state. Average basis, in the five reported regions in Tennessee, has decreased 10 to 18 cents and 0 to 16 cents since July 14th for corn and soybeans, respectively. December cotton futures have backed off 3.5 cents since early July highs and look to be settling back into the 62-66 cent trading range that we have had for most of 2015. After hitting a high of $6.17 ½ on June 30th, September wheat futures have declined over $1.00. As long as weather remains favorable prices are likely to continue to decline.
The USD index is often used as a proxy for the strength of the US dollar; however when examining the impact of currency changes on domestic exports it is far more useful to look directly at the currencies of major importing and exporting countries for each commodity. For example, as of July 24, 2015, one USD would buy 3.33 Brazilian Real compared to one year ago when one USD would buy 2.22 Brazilian Real. Translated into soybean prices, a bushel of soybeans at $9.80 USD (for both 2014 and 2015) had a value of 21.76 Brazilian Real July 25, 2014 vs. 32.63 Brazilian Real on July 24, 2015. This is a 50 percent increase in the nominal price Brazilian producers received between this year and last year. This change in soybean price is a simplification of how exchange rates influence the price of a global commodity and can be misleading as it should also be pointed out that inputs purchased by Brazilian producers in USD would be 50 percent more expensive as well. However, the US and Brazil are the two largest exporters of soybeans to China, the largest importer. Since the Chinese Yuan relative to the USD is roughly the same as one year ago; 6.21Chinesee Yuan for one USD (July 24, 2015) vs. 6.19 Chinese Yuan for one USD (July 24, 2014), it is easy to see why Chinese soybean purchases currently favor Brazil, all else being equal.
Corn
September 2015 corn futures closed at $3.92 down 38 cents from last week. This week, September 2015 corn futures prices traded between $3.92 and $4.18. Across Tennessee, average basis (cash price-nearby futures price) weakened at Northwest Barge Points, Memphis, Upper-middle, Northwest, and Lower-middle Tennessee. Overall, average basis for the week ranged from 29 under to 13 over the September futures contract with an average of 9 under at the end of the week. Ethanol production for the week ending July 17th was 973,000 barrels per day down 11,000 barrels per day from last week. Ending ethanol stocks were 19.559 million barrels down 181,000 barrels from last week. Corn net sales reported by exporters from July 10th to 16th were below expectations with net sales of 8.8 million bushels for the 2014/15 marketing year and 12.3 million bushels for the 2015/16 marketing year. Exports for the same time period were up from last week at 45.5 million bushels. Corn export sales and commitments were 100 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 103 percent. Sep/Dec and Sep/Mar future spreads were 10 cents and 20 cents, respectively.
December 2015 corn futures closed at $4.02 down 39 cents since last week. In Tennessee, September 2015 cash forward contracts averaged $3.93 with a range of $3.59 to $4.26. Nationally, this week’s Crop Progress report estimated corn condition at 69 percent good-to-excellent and 9 percent poor-to-very poor; and corn silking at 55 percent compared to 27 percent last week, 53 percent last year, and a 5-year average of 56 percent. In Tennessee, corn condition was estimated at 84 percent good-to-excellent and 3 percent poor-to-very poor; corn silking at 89 percent compared to 78 percent last week, 88 percent last year, and a 5-year average of 90 percent; and corn dough or beyond at 30 percent compared to 8 percent last week, 27 percent last year, and a 5-year average of 43 percent. Downside price protection could be obtained by purchasing a $3.95 September 2015 Put Option costing 13 cents establishing a $3.82 futures floor.
Soybeans
August 2015 soybean futures closed at $9.91 down 28 cents since last week. This week August 2015 soybean futures traded between $9.88 and $10.29. Aug/Sep soybean-to-corn price ratio was 2.53 at the end of the week. For the week, average soybean basis weakened or remained unchanged at Northwest Barge Points, Memphis, Northwest, Upper-middle, and Lower-middle Tennessee. Basis ranged from 30 under to 29 over the August futures contract at elevators and barge points. Average basis at the end of the week was 7 over the August futures contract. Net sales reported by exporters were within expectations with net sales of 3.0 million bushels for the 2014/15 marketing year and net sales of 8.9 million bushels for the 2015/16 marketing year. Exports for the same period were up from last week at 11.6 million bushels. Soybean export sales and commitments were 102 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 103 percent. September 2015 soybean futures closed at $9.67 down 52 cents since last week. Aug/Sep and Aug/Nov future spreads were -24 cents and -26 cents, respectively.
November 2015 soybean futures closed at $9.65 down 46 cents from last week. Nov/Dec 2015 soybean-to-corn price ratio was 2.40. In Tennessee, October/November 2015 cash forward contracts averaged $9.83 with a range of $9.40 to $10.15 at elevators and barge points. Nationally, this week’s Crop Progress report estimated soybean condition at 62 percent good-to-excellent and 11 percent poor-to-very poor; soybeans blooming at 56 percent compared to 38 percent last week, 57 percent last year, and a 5-year average of 56 percent; and soybeans setting pods at 17 percent compared to 6 percent last week, 18 percent last year, and a 5-year average of 17 percent. In Tennessee, soybean condition was estimated at 80 percent good-to-excellent and 4 percent poor-to-very poor; soybeans blooming at 44 percent compared to 24 percent last week, 45 percent last year, and a 5-year average of 50 percent; and soybeans setting pods were estimated at 20 percent compared to 6 percent last week, 15 percent last year, and a 5-year average of 22 percent. Downside price protection could be achieved by purchasing a $9.80 November 2015 Put Option which would cost 49 cents and set a $9.31 futures floor.
Cotton
December 2015 cotton futures closed at 64.64 down 0.60 cents since last week. December 2015 cotton futures traded between 63.94 and 65.42 cents this week. Adjusted world price (AWP) decreased 0.84 cents to 50.02 cents per pound. Delta upland cotton spot price quotes for July 23 were 63.67 to 66.42 cents/lb. Net sales reported by exporters were down from last week with net sales of 91,500 bales for the 2014/15 marketing year and 45,500 bales for the 2015/16 marketing year. Exports for the same period were up from last week at 173,400 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 109 percent. Nationally, this week’s Crop Progress report estimated cotton condition at 57 percent good-to-excellent and 8 percent poor-to-very poor; cotton squaring at 76 percent compared to 61 percent last week, 83 percent last year, and a 5-year average of 81 percent; cotton setting bolls at 33 percent compared to 18 percent last week, 36 percent last year, and 5-year average of 36 percent. In Tennessee, cotton condition was estimated at 69 percent good-to-excellent and 3 percent poor-to-very poor; cotton squaring at 75 percent compared to 63 percent last week, 81 percent last year, and a 5-year average of 83 percent; and cotton setting bolls at 26 percent compared to 12 percent last week, 28 percent last year, and a 5-year average of 32 percent. Downside price protection could be obtained by purchasing a 65 cent December 2015 Put Option costing 3.14 cents establishing a 61.86 cent futures floor.
Dec/Mar and Dec/Dec cotton futures spreads were -0.14 cents and -0.52 cents, respectively. December 2016 cotton futures closed at 64.12 down 0.42 cents since last week.
Wheat
September 2015 wheat futures closed at $5.11 down 51 cents since last week. September wheat futures traded between $5.09 and $5.53 this week. September wheat-to-corn price ratio was 1.30. Net sales reported by exporters were above expectations with net sales of 18.5 million bushels for the 2015/16 marketing year. Exports for the same period were up from last week at 21.4 million bushels. Wheat export sales were 27 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 34 percent. Nationally, this week’s Crop Progress report estimated winter wheat harvested at 75 percent compared to 65 percent last week, 74 percent last year, and a 5-year average of 74 percent; spring wheat condition at 70 percent good-to-excellent and 7 percent poor-to-very poor; and spring wheat headed at 96 percent compared to 91 percent last week, 82 percent last year, and a 5-year average of 83 percent. In Tennessee, winter wheat harvested was estimated at 99 percent compared to 98 percent last week, 91 percent last year, and a 5-year average of 98 percent. In Tennessee, July 2015 cash contracts averaged $4.89 with a range of $4.66 to $5.15 at elevators and barge points.
December 2015 wheat futures closed at $5.19 down 52 cents since last week. Sep/Dec and Sep/Jul future spreads were 8 cents and 21 cents, respectively. July 2016 wheat futures closed at $5.32 down 49 cents since last week. In Memphis, new crop cash contracts traded from $5.18 to $5.37 this week. Downside price protection could be obtained by purchasing a $5.40 July 2016 Put Option costing 52 cents establishing a $4.88 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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