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Uncertainty Remains Regarding The 2016 Corn Crop
DR. AARON SMITH
KNOXVILLE, TENN.
Corn, soybeans, and wheat were up; cotton was down for the week. March corn futures have moved sideways for the past two weeks. Producers that have corn in storage should consider additional sales at the top end of the current futures range ($3.70-$3.72), particularly in areas where a beneficial basis currently exists. Currently, many locations in Tennessee have a strong positive basis (10 to 35 over the March contract). Cash prices near/above $4.00 are very good selling opportunities that should not be allowed to pass idly by. December 2016 corn futures are up almost 20 cents from the contract low of $3.74 ½ on January 7th. A great deal of uncertainty remains regarding the 2016 corn crop, however given large global and domestic stocks, a strong USD, a stagnant-to-weakening global economy, and reasonably good growing conditions in South America producers need to start thinking about pricing some 2016 production. That being said, producers should not get too aggressive with their pricing at this point in the marketing year but securing a price on 10-20 percent of their production should be considered.
March soybeans could not pick a direction for the week – up 4 cents Monday; down 3 ¼ cents Tuesday; up 7 cents Wednesday; down 14 ¾ cents on Thursday; and up 14 ½ cents on Friday. The net result was a 6 cent increase compared to last Friday. Soybeans appear to be seeking confirmation of the record South American harvest and/or a reduction in Chinese demand for US soybeans. At this point in time, it seems unlikely that nearby soybean futures will be able to breach the $9.00 level. As such, sales when futures are $8.80 or above should be considered. Similar to corn, a beneficial basis has the potential to push cash sales above the $9.00 level for many Tennessee producers. Given the current global oilseed supply and demand situation, storing soybeans and hoping for a higher price is not worth the risk. November 2016 soybeans are up over 40 cents from the September 11th contract low of $8.50. Producers may want to consider establishing a price floor on 2016 soybean production prior to planting. Currently, a $9.00 put option could be purchased for 61 cents (this could be partially offset by selling an out-of-the money call) establishing $8.39 futures floor.
Corn
March 2016 corn futures closed at $3.72 up 2 cents since last Friday. March 2016 corn futures traded between $3.65 and $3.72 for the week. Across Tennessee, average basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis, Northwest Barge Points, Lower-middle, and Upper-middle Tennessee and weakened at Northwest Tennessee. Overall, basis for the week ranged from 11 under to 35 over the March futures contract with an average of 12 over at the end of the week. Ethanol production for the week ending January 22nd was 961,000 barrels per day down 22,000 from last week. Ending ethanol stocks were 21.436 million barrels down 504,000 barrels from last week. Corn net sales reported by exporters from January 15th to 21st were within expectations with net sales of 32.2 million bushels for the 2015/16 marketing year and 1.5 million bushels for the 2016/17 marketing year. Exports for the same time period were up from last week at 25.5 million bushels. Corn export sales and commitments were 53 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 67 percent.
May 2016 corn futures closed at $3.76 up 2 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 $3.68 with a range of $3.44 to $4.00. September 2016 corn futures closed at $3.86 up 2 cents since last Friday. Downside price protection could be obtained by purchasing a $4.00 December 2016 Put Option costing 38 cents establishing a $3.62 futures floor.
Soybeans
March 2016 soybean futures closed at $8.82 up 6 cents since last Friday. March 2016 soybean futures traded between $8.67 and $8.85. For the week, average soybean basis weakened or remained unchanged at Memphis, Northwest Barge Points, Northwest, Lower-middle, and Upper-middle Tennessee. Basis ranged from even to 36 over the March futures contract at elevators and barge points. Average basis at the end of the week was 16 over the March futures contract. Net sales reported by exporters were within expectations with net sales of 23.8 million bushels for the 2015/16 marketing year. Exports for the same period were down from last week at 48.6 million bushels. Soybean export sales and commitments were 88 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 89 percent. March soybean-to-corn price ratio was 2.37 at the end of the week.
May 2016 soybean futures closed at $8.84 up 7 cents since last Friday. Mar/May and Mar/Nov future spreads were 2 cents and 11 cents, respectively. November/September 2016 soybean-to-corn price ratio was 2.31 at the end of the week. In Tennessee, October/November 2016 cash forward contracts averaged $8.72 with a range of $8.50 to $8.99 at elevators and barge points. November 2016 soybean futures closed at $8.93 up 10 cents since last Friday. Downside price protection could be achieved by purchasing a $9.00 November 2016 Put Option which would cost 61 cents and set an $8.39 futures floor.
Cotton
March 2016 cotton futures closed at 61.13 down 1.32 cents since last Friday. March 2016 cotton futures traded between 60.67 and 62.49 cents this week. Adjusted world price (AWP) decreased 0.12 cents to 46.89 cents per pound. Delta upland cotton spot price quotes for January 28th were 61.61 cents/lb (41-4-34) and 64.36 cents/lb (31-3-35). Net sales reported by exporters were down from last week with net sales of 128,300 bales for the 2015/16 marketing year and 68,700 bales for the 2016/17 marketing year. Exports for the same period were up from last week at 157,100 bales. Upland cotton export sales were 60 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 90 percent.
May 2016 cotton futures closed at 61.6 down 1.23 cents since last Friday. Mar/May and Mar/Dec cotton futures spreads were 0.47 cents and 0.26 cents, respectively. December 2016 cotton futures closed at 61.39 down 1.36 cents since last Friday. Downside price protection could be obtained by purchasing a 62 cent December 2016 Put Option costing 3.95 cents establishing a 58.05 cent futures floor.
Wheat
March 2016 wheat futures closed at $4.79 up 4 cents since last Friday. March 2016 wheat futures traded between $4.70 and $4.88 this week. March wheat-to-corn price ratio was 1.29. Net sales reported by exporters were within expectations with net sales of 10.8 million bushels for the 2015/16 marketing year and 1.9 million bushels for the 2016/17 marketing year. Exports for the same period were up from last week at 11.4 million bushels. Wheat export sales were 77 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 83 percent. In Memphis, old crop cash wheat traded between $4.67 and $4.79 for the week. Mar/May and Mar/Jul future spreads were 6 cents and 11 cents, respectively.
May 2016 wheat futures closed at $4.85 up 5 cents since last Friday. In Tennessee, June/July cash forward contracts averaged $4.75 with a range of $4.44 to $5.11. July 2016 wheat futures closed at $4.90 up 5 cents since last Friday. Downside price protection could be obtained by purchasing a $4.90 July 2016 Put Option costing 34 cents establishing a $4.56 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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