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Report Shows Major Growth In Grain, Oilseed Stocks
DR. AARON SMITH
KNOXVILLE, TENN.
Corn, cotton, and wheat were down and soybeans were up for the week. On Tuesday, the USDA released the February WASDE report. There were no major surprises on the report. However, the report did confirm growing domestic and record global grain and oilseed stocks. Domestic ending stocks and stocks-to-use ratio (in brackets), for the 2015/16 marketing year, are now estimated at 1.837 (13.56 percent), 0.450 (12.6 percent), and 0.966 (49.35 percent) billion bushels for corn, soybeans, and wheat, respectively. Globally the situation is equally concerning with stocks of corn, soybeans, and wheat now estimated at 8.22, 2.96, and 8.78 billion bushels, respectively. The size of the projected global ending stocks for commodities can often be difficult to grasp due to the magnitude of the numbers involved. In order to provide a more comprehendible measure of the size of global grain and oilseed stocks (relative to global use) you can estimate days of inventory on hand (ie. the number of days, assuming no new production occurred, that it would take to run out of the commodity, assuming a constant daily use). For the 2015/16 marketing year, wheat is estimated to have 123 days of inventory on hand, the greatest number of days on hand since 2001 and 25 days greater than the 10-year average (2005-2014). Corn and soybean inventory on hand are estimated down slightly from last year at 78 and 93 days, respectively. However, this is still greater than the 10-year averages of 62 days for corn and 87 days for soybeans.
Looking at cotton, the numbers at face value are worse. Domestic ending stocks are estimated up 500,000 bales at 3.6 million, resulting in a stocks-to-use ratio of 27.48 percent. Globally, cotton stocks are estimated at 104.08 million bales or 347 days on hand (almost a full year of production in reserve). It is important to note that China holds 64.5 million bales of the global reserves and the quality may be extremely variable. The good news for cotton markets are two-fold: i) global cotton stocks and days on hand are actually down 7.99 million bales and 24 days from the previous marketing year; and ii) prices are unlikely to drop below the bottom of the long term futures trading floor of 57 cents per lb. Unfortunately, it is also unlikely that cotton will be able to move above the upper limit of the long term trading range of 68 cents in the foreseeable future.
Corn
March 2016 corn futures closed at $3.58 down 7 cents since last Friday. March 2016 corn futures traded between $3.58 and $3.67 for the week. Across Tennessee, average basis (cash price-nearby futures price) strengthened at Northwest, Lower-middle, and Upper-middle Tennessee and weakened at Northwest Barge Points and Memphis. Overall, basis for the week ranged from 13 under to 35 over the March futures contract with an average of 10 over at the end of the week. Ethanol production for the week ending February 5th was 969,000 barrels per day up 10,000 from last week. Ending ethanol stocks were 22.956 million barrels up 594,000 barrels from last week. Corn net sales reported by exporters from January 29th to February 4th were below expectations with net sales of 15.9 million bushels for the 2015/16 marketing year and net sales reductions of 2.3 million bushels for the 2016/17 marketing year. Exports for the same time period were down from last week at 20.8 million bushels. Corn export sales and commitments were 59 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 72 percent.
May 2016 corn futures closed at $3.63 down 7 cents since last Friday. Mar/May and Mar/Sep future spreads were 5 cents and 15 cents, respectively. In Tennessee, September 2016 cash forward contracts averaged $3.61 with a range of $3.39 to $3.92. September 2016 corn futures closed at $3.73 down 8 cents since last Friday. Downside price protection could be obtained by purchasing a $3.90 December 2016 Put Option costing 35 cents establishing a $3.55 futures floor.
Soybeans
March 2016 soybean futures closed at $8.72 up 5 cents since last Friday. March 2016 soybean futures traded between $8.59 and $8.75. For the week, average soybean basis weakened or remained unchanged at Memphis, Northwest Barge Points, Northwest, Upper-middle, and Lower-middle Tennessee. Basis ranged from 2 under to 47 over the March futures contract at elevators and barge points. Average basis at the end of the week was 10 over the March futures contract. Net sales reported by exporters were above expectations with net sales of 24.5 million bushels for the 2015/16 marketing year and net sales reductions of 2.4 million bushels for the 2016/17 marketing year. Exports for the same period were up from last week at 48.6 million bushels. Soybean export sales and commitments were 90 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 91 percent. March soybean-to-corn price ratio was 2.44 at the end of the week.
May 2016 soybean futures closed at $8.76 up 5 cents since last Friday. Mar/May and Mar/Nov future spreads were 4 cents and 14 cents, respectively. November/September 2016 soybean-to-corn price ratio was 2.38 at the end of the week. In Tennessee, October/November 2016 cash forward contracts averaged $8.68 with a range of $8.42 to $8.93 at elevators and barge points. November 2016 soybean futures closed at $8.86 up 3 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 58.9 down 1.07 cents since last Friday. March 2016 cotton futures traded between 57.85 and 60.12 cents this week. Adjusted world price (AWP) decreased 1.76 cents to 45.09 cents per pound. Delta upland cotton spot price quotes for February 11th were 58.67 cents/lb (41-4-34) and 61.42 cents/lb (31-3-35). Net sales reported by exporters were down from last week with net sales of 227,700 bales for the 2015/16 marketing year and 53,700 bales for the 2016/17 marketing year. Exports for the same period were down from last week at 180,500 bales. Upland cotton export sales were 69 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 92 percent.
May 2016 cotton futures closed at 58.64 down 1.96 cents since last Friday. Mar/May and Mar/Dec cotton futures spreads were -0.26 cents and 0.03 cents, respectively. December 2016 cotton futures closed at 58.93 down 2.45 cents since last Friday. Downside price protection could be obtained by purchasing a 59 cent December 2016 Put Option costing 3.2 cents establishing a 55.8 cent futures floor.
Wheat
March 2016 wheat futures closed at $4.57 down 9 cents since last Friday. March 2016 wheat futures traded between $4.55 and $4.68 this week. March wheat-to-corn price ratio was 1.28. Net sales reported by exporters were within expectations with net sales of 9.7 million bushels for the 2015/16 marketing year and 1.3 million bushels for the 2016/17 marketing year. Exports for the same period were up from last week at 13.8 million bushels. Wheat export sales were 81 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 87 percent. In Memphis, old crop cash wheat traded between $4.52 and $4.56 for the week. Mar/May and Mar/Jul future spreads were 5 cents and 10 cents, respectively.
May 2016 wheat futures closed at $4.62 down 8 cents since last Friday. In Tennessee, June/July cash forward contracts averaged $4.59 with a range of $4.27 to $4.97. July 2016 wheat futures closed at $4.67 down 8 cents since last Friday. Downside price protection could be obtained by purchasing a $4.70 July 2016 Put Option costing 28 cents establishing a $4.42 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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