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Weather, China’s Economic Condition Drives Commodity Price Bottom
DR. AARON SMITH
KNOXVILLE, TENN.
Corn, soybeans, cotton, and wheat were down for the week. Prices continued to slide lower this week as harvest progressed across the South. Compared to last year at this time, corn and cotton futures are about the same while soybean and wheat futures are substantially lower. In 2014, the December corn contract low was $3.18 ¼ on October 1; the November soybeans contract low was $9.04 on October 1; the December cotton contract low was 57.84 on November 20; and the December wheat contract low was $4.66 ¼ on September 25. For 2015, the current contract lows are: corn ($3.57 ½); soybeans ($8.55); wheat ($4.63); and cotton 61.20. Given the estimated size of this year’s crop, current global economic conditions, the strength of the USD relative to our competitors, and the abundance of grain, oilseed, and cotton stocks worldwide, it is very unlikely that we have seen the contract lows for 2015. How much lower prices will go will depend on harvest weather, the economic situation in China, and changes to current yield and production estimates. Next Friday’s USDA Crop Production and WASDE reports will provide production and supply updates, domestically and globally, that may assist in determining market direction.
In Tennessee, producers are getting hit by both lower futures and a weakening basis. Since the beginning of July, corn basis in Northwest Tennessee has slid from 5 under to almost 30 under. In the same time period, in Lower-middle Tennessee, soybean basis has weakened from 20 over to 10 under. Above average crop conditions and a supply glut from good crops the past two years will continue to weaken basis as we progress through the harvest season.
There will likely be continued volatility in the stock markets as the DJIA was down about 300 points at 2 pm EST today as traders prepare for the Labor Day weekend. Additionally, the Chinese stock market will reopen after being closed for the Victory Day holiday on September 3rd and 4th.
Corn
December 2015 corn futures closed at $3.63 down 12 cents from last week. This week, December 2015 corn futures traded between $3.60 and $3.77. Across Tennessee, average basis (cash price-nearby futures price) strengthened at Memphis and Northwest Tennessee and weakened at Northwest Barge Points, Upper-middle, and Lower-middle Tennessee. Overall, average basis for the week ranged from 37 under to 10 over the December futures contract with an average of 21 under at the end of the week. Ethanol production for the week ending August 28th was 948,000 barrels per day down 4,000 from last week. Ending ethanol stocks were 19.002 million barrels up 374,000 barrels from last week. Corn net sales reported by exporters from August 21st to 27th were within expectations with net sales of 4.4 million bushels for the 2014/15 marketing year and below expectations with net sales of 12.9 million bushels for the 2015/16 marketing year. Exports for the same time period were up from last week at 42.4 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 105 percent. Nationally, this week’s Crop Progress report estimated corn condition at 68 percent good-to-excellent and 10 percent poor-to-very poor; corn dough or beyond at 92 percent compared to 85 percent last week, 89 percent last year, and a 5-year average of 90 percent; corn dented or beyond at 60 percent compared to 39 percent last week, 50 percent last year, and a 5-year average of 60 percent; and corn mature at 9 percent compared to 7 percent last year and a 5-year average of 15 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 98 percent compared to 97 percent last week, 98 percent last year, and a 5-year average of 99 percent; corn dented or beyond at 85 percent compared to 74 percent last week, 80 percent last year, and a 5-year average of 91 percent; and corn mature at 25 percent compared to 6 percent last week, 17 percent last year, and a 5-year average of 49 percent. In Tennessee, January 2016 cash forward contracts averaged $3.57 with a range of $3.29 to $3.89. Downside price protection could be obtained by purchasing a $3.65 December 2015 Put Option costing 18 cents establishing a $3.47 futures floor.
March 2016 corn futures closed at $3.74 down 12 cents since last week. Dec/Mar and Dec/Sep future spreads were 11 cents and 18 cents, respectively. September 2016 corn futures closed at $3.81 down 10 cents since last week.
Soybeans
November 2015 soybean futures closed at $8.66 down 19 cents since last week. This week November 2015 soybean futures traded between $8.65 and $8.88. November/December soybean-to-corn price ratio was 2.39 at the end of the week. For the week, average soybean basis weakened at Northwest Barge Points, Memphis, Northwest, and Lower-middle Tennessee and strengthened in Upper-middle Tennessee. Basis ranged from 25 under to 35 over the November futures contract at elevators and barge points. Average basis at the end of the week was 2 under the November futures contract. Net sales reported by exporters were within expectations with net sales cancelations of 2.2 million bushels for the 2014/15 marketing year and above expectations with net sales of 56.3 million bushels for the 2015/16 marketing year. Exports for the same period were down from last week at 5.4 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. Nationally, this week’s Crop Progress report estimated soybean condition at 63 percent good-to-excellent and 11 percent poor-to-very poor; soybeans setting pods at 93 percent compared to 87 percent last week, 94 percent last year, and a 5-year average of 95 percent; and soybeans dropping leaves at 9 percent compared to 5 percent last year and a 5-year average of 7 percent. In Tennessee, soybean condition was estimated at 80 percent good-to-excellent and 4 percent poor-to-very poor; soybeans setting pods at 91 percent compared to 81 percent last week, 91 percent last year, and a 5-year average of 93 percent; and soybeans dropping leaves at 4 percent compared to 3 percent last year and a 5-year average of 11 percent. In Tennessee, October/November 2015 cash forward contracts averaged $8.74 with a range of $8.34 to $9.12 at elevators and barge points. Downside price protection could be achieved by purchasing an $8.70 November 2015 Put Option which would cost 28 cents and set an $8.42 futures floor.
January 2016 soybean futures closed at $8.69 down 21 cents since last week. Sep/Nov and Sep/Jan future spreads were 3 cents and -7 cents, respectively. November 2016 soybean futures closed at $8.59 down 20 cents from last week. September/November 2016 soybean-to-corn price ratio was 2.25 at the end of the week.
Cotton
December 2015 cotton futures closed at 62.62 down 0.38 cents since last week. December 2015 cotton futures traded between 62.11 and 63.53 cents this week. Adjusted world price (AWP) decreased 1.61 cents to 46.6 cents per pound. Delta upland cotton spot price quotes for September 3rd were 60.87 to 63.62 cents/lb. Net sales reported by exporters were down from last week with net sales of 66,500 bales for the 2015/16 marketing year and 2,200 bales for the 2016/17 marketing year. Exports for the same period were up from last week at 153,100 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 47 percent. Nationally, this week’s Crop Progress report estimated cotton condition at 54 percent good-to-excellent and 11 percent poor-to-very poor; cotton setting bolls at 94 percent compared to 83 percent last week, 95 percent last year, and 5-year average of 96 percent; and cotton bolls opening at 22 percent compared to 14 percent last week, 29 percent last year, and a 5-year average of 27 percent. In Tennessee, cotton condition was estimated at 81 percent good-to-excellent and 1 percent poor-to-very poor; cotton setting bolls at 91 percent compared to 86 percent last week, 95 percent last year, and a 5-year average of 98 percent; and cotton bolls opening at 13 percent compared to 8 percent last week, 25 percent last year, and a 5-year average of 28 percent. Downside price protection could be obtained by purchasing a 63 cent December 2015 Put Option costing 2.62 cents establishing a 60.38 cent futures floor.
March 2016 cotton futures closed at 62.4 down 0.28 cents since last week. Dec/Mar and Dec/Dec cotton futures spreads were -0.22 cents and -0.78 cents, respectively. December 2016 cotton futures closed at 61.84 down 1.26 cents since last week.
Wheat
December 2015 wheat futures closed at $4.67 down 16 cents since last week. December wheat futures traded between $4.63 and $4.91 this week. December wheat-to-corn price ratio was 1.29. Net sales reported by exporters were within expectations with net sales of 10.2 million bushels for the 2015/16 marketing year. Exports for the same period were up from last week at 19.5 million bushels. Wheat export sales were 40 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 47 percent. Nationally, this week’s Crop Progress report estimated spring wheat harvested at 88 percent compared to 75 percent last week, 36 percent last year, and a 5-year average of 62 percent.
March 2016 wheat futures closed at $4.76 down 15 cents since last week. Dec/Mar and Dec/Jul future spreads were 9 cents and 19 cents, respectively. In Tennessee, June/July cash forward contracts averaged $4.57 with a range of $3.85 to $4.98. July 2016 wheat futures closed at $4.86 down 15 cents since last week. Downside price protection could be obtained by purchasing a $4.90 July 2016 Put Option costing 47 cents establishing a $4.43 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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