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Exports For All Four Commodities Still Lag Behind
DR. AARON SMITH
KNOXVILLE, TENN.
Corn, cotton, and wheat were up; soybeans were down for the week. March corn has rallied almost 20 cents since establishing a new contract low of $3.48 ½ on January 7th. March soybeans are up about 15 cents since the start of the year. However, significant resistance appears to be forming near $8.90. March cotton remains trapped in a 3 cent trading range (61-64 cents). March wheat has moved sideways since the USDA’s Winter Wheat Seedings report indicated domestic acreage was down 2.85 million acres. Export sales this week were an improvement over recent weeks; however exports still lag behind the pace required to meet USDA marketing year estimates for all four commodities. Compared to the previous marketing year, accumulated exports year-to-date for corn, soybeans, cotton, and wheat are down 23 percent, 9 percent, 14 percent, and 14 percent, respectively. A strong USD and abundance of global supplies are the primary culprits for reduced exports. Currently, only soybeans (+19 percent) are ahead of the five year average accumulated exports for this time in the marketing year. Wheat and corn are down 27 percent and 18 percent, respectively, and cotton is down almost 31 percent. Part of the reduction, for cotton and wheat, can be attributed to reduced production for the current marketing year compared to the five-year average. Cotton production is down 20 percent and wheat down 2 percent compared to their previous five-year averages. On the other hand, corn production is up 7 percent this year compared to its previous five year average (including the drought year of 2012). Exports, for the remainder of this marketing year, will likely continue to face an uphill battle as it appears very unlikely that the USD will weaken or global supplies be diminished in any substantial way (barring a weather event). As such, domestic stocks are likely to continue to grow and restrict any upward price movements.
Corn
March 2016 corn futures closed at $3.70 up 7 cents since last Friday. March 2016 corn futures traded between $3.64 and $3.72. Across Tennessee, average basis (cash price-nearby futures price) strengthened or remained unchanged at Northwest, Lower-middle, and Upper-middle Tennessee and weakened at Memphis and Northwest Barge Points. Overall, basis for the week ranged from 11 under to 30 over the March futures contract with an average of 11 over at the end of the week. Ethanol production for the week ending January 15th was 983,000 barrels per day down 20,000 from last week. Ending ethanol stocks were 21.940 million barrels up 595,000 barrels from last week. Corn net sales reported by exporters from January 8th to 14th were above expectations with net sales of 45.6 million bushels for the 2015/16 marketing year and 7.4 million bushels for the 2016/17 marketing year. Exports for the same time period were down from last week at 22.5 million bushels. Corn export sales and commitments were 52 percent of the USDA estimated total annual exports for the 2015/16 marketing year (September 1 to August 31) compared to a 5-year average of 65 percent.
May 2016 corn futures closed at $3.74 up 7 cents since last Friday. Mar/May and Mar/Sep future spreads were 4 cents and 14 cents, respectively. In Tennessee, September 2016 cash forward contracts averaged $3.69 with a range of $3.55 to $3.96. September 2016 corn futures closed at $3.84 up 7 cents since last Friday. Downside price protection could be obtained by purchasing a $4.00 December 2016 Put Option costing 37 cents establishing a $3.63 futures floor.
Soybeans
March 2016 soybean futures closed at $8.76 down 3 cents since last Friday. March 2016 soybean futures traded between $8.70 and $8.88. For the week, average soybean basis strengthened or remained unchanged at Northwest and Lower-middle Tennessee and weakened at Memphis, Northwest Barge Points, and Upper-middle Tennessee. Basis ranged from 1 under to 38 over the March futures contract at elevators and barge points. Average basis at the end of the week was 18 over the March futures contract. Net sales reported by exporters were within expectations with net sales of 36.2 million bushels for the 2015/16 marketing year and 1.0 million bushels for the 2016/17 marketing year. Exports for the same period were up from last week at 57.9 million bushels. Soybean export sales and commitments were 87 percent of the USDA estimated total annual exports for the 2015/16 marketing year (September 1 to August 31), compared to a 5-year average of 87 percent. March soybean-to-corn price ratio was 2.37 at the end of the week.
May 2016 soybean futures closed at $8.77 down 1 cent since last Friday. Mar/May and Mar/Nov future spreads were 1 cent and 7 cents, respectively. November/September 2016 soybean-to-corn price ratio was 2.30 at the end of the week. In Tennessee, October/November 2016 cash forward contracts averaged $8.73 with a range of $8.57 to $8.99 at elevators and barge points. November 2016 soybean futures closed at $8.83 down 2 cents since last Friday. Downside price protection could be achieved by purchasing a $9.00 November 2016 Put Option which would cost 58 cents and set an $8.42 futures floor.
Cotton
March 2016 cotton futures closed at 62.45 up 1.04 cents since last Friday. March 2016 cotton futures traded between 61.3 and 62.93 cents this week. Adjusted world price (AWP) increased 0.11 cents to 47.01 cents per pound. Delta upland cotton spot price quotes for January 21st were 62.34 cents/lb (41-4-34) and 65.09 cents/lb (31-3-35). Net sales reported by exporters were up from last week with net sales of 194,600 bales for the 2015/16 marketing year and 10,300 bales for the 2016/17 marketing year. Exports for the same period were up from last week at 136,000 bales. Upland cotton export sales were 59 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 88 percent.
May 2016 cotton futures closed at 62.83 up 0.93 cents since last Friday. Mar/May and Mar/Dec cotton futures spreads were 0.38 cents and 0.30 cents, respectively. December 2016 cotton futures closed at 62.75 up 0.28 cents since last Friday. Downside price protection could be obtained by purchasing a 63 cent December 2016 Put Option costing 4.1 cents establishing a 58.9 cent futures floor.
Wheat
March 2016 wheat futures closed at $4.75 up 2 cents since last Friday. March 2016 wheat futures traded between $4.67 and $4.80 this week. March wheat-to-corn price ratio was 1.28. Net sales reported by exporters were within expectations with net sales of 13.3 million bushels for the 2015/16 marketing year and 2.8 million bushels for the 2016/17 marketing year. Exports for the same period were down from last week at 9.5 million bushels. Wheat export sales were 76 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 81 percent. In Memphis, old crop cash wheat traded between $4.66 and $4.70 for the week. Mar/May and Mar/Jul future spreads were 5 cents and 10 cents, respectively.
May 2016 wheat futures closed at $4.80 up 2 cents since last Friday. In Tennessee, June/July cash forward contracts averaged $4.75 with a range of $4.45 to $5.05. July 2016 wheat futures closed at $4.85 up 1 cent since last Friday. Downside price protection could be obtained by purchasing a $4.90 July 2016 Put Option costing 32 cents establishing a $4.58 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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