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Stock Market May Continue To Create Commodity Volatility
DR. AARON SMITH
KNOXVILLE, TENN.
Corn, soybeans, cotton, and wheat were down for the week. This week we saw a tremendous amount of volatility in the Dow Jones Industrial Average (DJIA) and crude oil. The DJIA reached a 565-day low of 15,666 on Tuesday August 25th and October WTI Crude Oil futures established a new low of 37.75 on Monday August 24th. The DJIA bounced back and erased all of the week’s losses with rallies on Wednesday and Thursday closing close to where the week began. Crude oil rallied almost 20 percent from the contract low closing near $45/bbl. Uncertainty and concern over the Chinese economy and stock market will likely continue to create volatility in commodity and financial markets.
In agricultural markets, December corn futures traded in a 21-cent range ($3.65-$3.86/bu) and November soybeans in a 34-cent range ($8.55-$8.89). As we move into September, we will likely see harvest corn and soybean futures move sideways to down. At present, there is more variation in the size, and upward price potential, for the corn crop than the soybean crop; due to yield uncertainty primarily in the central and eastern Corn Belt. This can be seen in the change in harvest futures price ratios in August. From August 2nd to August 28th, the November soybean-to-December corn futures price ratio has fallen from 2.48 to 2.36 and December wheat-to-corn futures price ratio has decreased from 1.34 to 1.30. Many crop tours and private firms have state yield estimates that vary substantially from the USDA’s August crop production report. New USDA yield and production estimates will be released September 11 and will be closely watched. December cotton futures dropped almost 3 cents on Monday. With uncertainty in the global economy, fueled by China, it is unlikely that we will see harvest cotton futures move out of the 60 to 68 cent trading range we have seen for the majority of the year. Wheat futures continued their dissent from early July highs and are now down over $1.30/bu from the high. The December wheat contract hit a new low on Friday of $4.82 ¾.
Corn
September 2015 corn futures closed at $3.63 down 2 cents from last week. This week, September 2015 corn futures prices traded between $3.54 and $3.75. Across Tennessee, average basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis, Northwest Barge Points, Upper-middle, and Northwest Tennessee and weakened at Lower-middle Tennessee. Overall, average basis for the week ranged from 25 under to 20 over the September futures contract with an average of 4 under at the end of the week. Ethanol production for the week ending August 21st was 952,000 barrels per day down 13,000 from last week. Ending ethanol stocks were 18.628 million barrels up 67,000 barrels from last week. Corn net sales reported by exporters from August 14th to 20th were below expectations with net sales cancelations of 5.2 million bushels for the 2014/15 marketing year and above expectations with net sales of 38.8 million bushels for the 2015/16 marketing year. Exports for the same time period were down from last week at 32.3 million bushels. Corn export sales and commitments were 101 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 106 percent. Sep/Dec and Sep/Mar future spreads were 12 cents and 23 cents, respectively.
December 2015 corn futures closed at $3.75 down 2 cents since last week. In Tennessee, September 2015 cash forward contracts averaged $3.54 with a range of $3.36 to $3.88. Nationally, this week’s Crop Progress report estimated corn condition at 69 percent good-to-excellent and 10 percent poor-to-very poor; corn dough or beyond at 85 percent compared to 71 percent last week, 81 percent last year, and a 5-year average of 81 percent; corn dented or beyond at 39 percent compared to 21 percent last week, 33 percent last year, and a 5-year average of 43 percent. In Tennessee, corn condition was estimated at 85 percent good-to-excellent and 2 percent poor-to-very poor; corn dough or beyond at 97 percent compared to 93 percent last week, 95 percent last year, and a 5-year average of 97 percent; corn dented or beyond at 74 percent compared to 52 percent last week, 64 percent last year, and a 5-year average of 83 percent; and corn mature at 6 percent compared to 7 percent last year and a 5-year average of 33 percent. Downside price protection could be obtained by purchasing a $3.75 December 2015 Put Option costing 19 cents establishing a $3.56 futures floor.
Soybeans
September 2015 soybean futures closed at $8.93 down 12 cents since last week. This week September 2015 soybean futures traded between $8.74 and $9.08. September soybean-to-corn price ratio was 2.46 at the end of the week. For the week, average soybean basis strengthened at Northwest Barge Points, Memphis, Upper-middle, and Lower-middle Tennessee and weakened in Northwest Tennessee. Basis ranged from 32 under to 28 over the September futures contract at elevators and barge points. Average basis at the end of the week was 5 over the September futures contract. Net sales reported by exporters were within expectations with net sales cancelations of 4.8 million bushels for the 2014/15 marketing year and above expectations with net sales of 53.6 million bushels for the 2015/16 marketing year. Exports for the same period were up from last week at 14.7 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 104 percent. Sep/Nov and Sep/Jan future spreads were -8 cents and -17 cents, respectively.
November 2015 soybean futures closed at $8.85 down 4cents from last week. Nov/Dec 2015 soybean-to-corn price ratio was 2.36. In Tennessee, October/November 2015 cash forward contracts averaged $8.73 with a range of $8.33 to $9.10 at elevators and barge points. Nationally, this week’s Crop Progress report estimated soybean condition at 63 percent good-to-excellent and 11 percent poor-to-very poor; soybeans blooming at 96 percent compared to 93 percent last week, 99 percent last year, and a 5-year average of 98 percent; and soybeans setting pods at 87 percent compared to 79 percent last week, 89 percent last year, and a 5-year average of 88 percent. In Tennessee, soybean condition was estimated at 81 percent good-to-excellent and 4 percent poor-to-very poor; soybeans blooming at 94 percent compared to 89 percent last week, 97 percent last year, and a 5-year average of 97 percent; and soybeans setting pods were estimated at 81 percent compared to 71 percent last week, 83 percent last year, and a 5-year average of 85 percent. Downside price protection could be achieved by purchasing an $8.90 November 2015 Put Option which would cost 33 cents and set an $8.57 futures floor. January 2016 soybean futures closed at $8.76 down 17 cents since last week.
Cotton
December 2015 cotton futures closed at 63 down 3.91 cents since last week. December 2015 cotton futures traded between 62.26 and 66.75 cents this week. Adjusted world price (AWP) decreased 1.25 cents to 48.21 cents per pound. Delta upland cotton spot price quotes for August 27th were 61.58 to 64.33 cents/lb. Net sales reported by exporters were up from last week with net sales of 61,100 bales for the 2015/16 marketing year and 20,500 bales for the 2016/17 marketing year. Exports for the same period were down from last week at 102,500 bales. Upland cotton export sales were 29 percent of the USDA estimated total annual exports for the 2015/16 marketing year (August 1 to July 31), compared to a 5-year average of 45 percent. Nationally, this week’s Crop Progress report estimated cotton condition at 53 percent good-to-excellent and 9 percent poor-to-very poor; cotton setting bolls at 83 percent compared to 73 percent last week, 90 percent last year, and 5-year average of 92 percent; and cotton bolls opening at 14 percent compared to 10 percent last week, 18 percent last year, and a 5-year average of 18 percent. In Tennessee, cotton condition was estimated at 82 percent good-to-excellent and 1 percent poor-to-very poor; cotton setting bolls at 86 percent compared to 79 percent last week, 92 percent last year, and a 5-year average of 95 percent; and cotton bolls opening at 8 percent compared to 4 percent last week, 14 percent last year, and a 5-year average of 15 percent. Downside price protection could be obtained by purchasing a 63-cent December 2015 Put Option costing 2.4 cents establishing a 60.6-cent futures floor.
March 2016 cotton futures closed at 62.68 down 3.67 cents since last week. Dec/Mar and Dec/Dec cotton futures spreads were -0.32 cents and 0.1 cents, respectively. December 2016 cotton futures closed at 63.1 down 2.21 cents since last week.
Wheat
September 2015 wheat futures closed at $4.77 down 22 cents since last week. September wheat futures traded between $4.76 and $5.11 this week. September wheat-to-corn price ratio was 1.31. In Tennessee, August cash prices averaged $4.50 with a range of $4.16 to $4.78 at elevators and barge points. Net sales reported by exporters were within expectations with net sales of 19.4 million bushels for the 2015/16 marketing year. Exports for the same period were down from last week at 13.1 million bushels. Wheat export sales were 39 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 45 percent. Nationally, this week’s Crop Progress report estimated spring wheat harvested at 75 percent compared to 53 percent last week, 26 percent last year, and a 5-year average of 47 percent. December 2015 wheat futures closed at $4.83 down 21 cents since last week. Sep/Dec and Sep/Jul future spreads were 6 cents and 24 cents, respectively.
July 2016 wheat futures closed at $5.01 down 11 cents since last week. In Memphis, July cash forward contracts ranged from $4.86 to $4.97. Downside price protection could be obtained by purchasing a $5.10 July 2016 Put Option costing 51 cents establishing a $4.59 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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