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Weather Is A Concern For Harvest Yields, Prices
DR. AARON SMITH
KNOXVILLE, TENN.
Corn, soybeans, cotton, and wheat were up for the week. Prices continued to move upward this week with corn leading the way. In Tennessee, harvest cash forward contracts, at the end of the week averaged $4.00 and $10.42, for corn and soybeans, respectively. These prices are substantially higher than many predictions by analysts this winter. So what has precipitated this reversal in price direction and price expectation? Demand for soybeans and soybean meal has exceeded expectations (again) pushing export and domestic demand past prior estimates. Additionally, supply concerns have emerged this spring in South America. Wet weather during harvest, in Argentina, dramatically reduced soybean production and dry weather in Brazil has decreased estimates for second crop corn production. Other factors positively influencing grain prices included a flat/decreasing USD (since the beginning of the year) and reduced global economic concerns. Lastly, weather uncertainty for the domestic crop has the potential to be disruptive as we see a potential move from El Nino to La Nina. All of these factors can and will continue to change and influence prices (in either direction) as we progress through this crop year. As such, it is important for producers to periodically reevaluate current cost of production estimates, yield projections, and price and marketing activity. Current harvest prices and average yield will result in profit for many producers in Tennessee as such pricing some additional production may be warranted. During these price rallies we often overlook the fact that prices can quickly reverse and profitable opportunities disappear.
Corn
July 2016 corn futures closed at $4.12 up 18 cents since last Friday. July 2016 corn futures traded between $3.91 and $4.13 for the week. Across Tennessee, average basis (cash price-nearby futures price) weakened or remained unchanged at Northwest, Lower-middle, and Upper-middle Tennessee and strengthened at Memphis and Northwest Barge Points. Overall, basis for the week ranged from 8 under to 41 over the July futures contract with an average of 8 over at the end of the week. Ethanol production for the week ending May 20 was 946,000 barrels per day down 2,000 from last week. Ethanol stocks were 20.813 million barrels, down 290,000 barrels. Corn net sales reported by exporters from May 13-19 were within expectations with net sales of 54.4 million bushels for the 2015/16 marketing year and 9.7 million bushels for the 2016/17 marketing year. Exports for the same time period were down from last week at 44.3 million bushels. Corn export sales and commitments were 95 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 96 percent.
September 2016 corn futures closed at $4.14 up 18 cents since last Friday. Jul/Sep and Jul/Dec future spreads were 2 and 1 cents, respectively. This week’s Crop Progress report estimated corn planted at 86 percent compared to 75 percent last week, 90 percent last year, and a 5-year average of 85 percent; and corn emerged at 60 percent compared to 43 percent last week, 69 percent last year, and a 5-year average of 55 percent. In Tennessee, this week’s Crop Progress report indicated corn planting at 97 percent compared to 94 percent last week, 96 percent last year, and a 5-year average of 92 percent; and corn emerged at 89 percent compared to 81 percent last week, 79 percent last year, and a 5-year average of 77 percent. In Tennessee, September 2016 cash forward contracts averaged $3.95 with a range of $3.73 to $4.22. December 2016 corn futures closed at $4.13 up 14 cents since last Friday. Downside price protection could be obtained by purchasing a $4.20 December 2016 Put Option costing 35 cents establishing a $3.85 futures floor.
Soybeans
July 2016 soybean futures closed at $10.86 up 12 cents since last Friday. July 2016 soybean futures traded between $10.43 and $10.98. For the week, average soybean basis strengthened or remained unchanged at Northwest Barge Points, Memphis, Northwest, Upper-middle, and Lower-middle Tennessee. Basis ranged from 40 under to 20 over the July futures contract at elevators and barge points. Average basis at the end of the week was 14 under the July futures contract. Net sales reported by exporters were within expectations with net sales of 16.8 million bushels for the 2015/16 marketing year and net sales of 5.5 million bushels for the 2016/17 marketing year. Exports for the same period were down from last week at 4.4 million bushels. Soybean export sales and commitments were 100 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 101 percent. July soybean-to-corn price ratio was 2.64 at the end of the week.
August 2016 soybean futures closed at $10.83 up 12 cents since last Friday. Jul/Aug and Jul/Nov future spreads were -3 cent and -3 cents, respectively. This week’s Crop Progress report estimated soybeans planted at 56 percent compared to 36 percent last week, 56 percent last year, and a 5-year average of 52 percent; and soybeans emerged at 22 percent compared to 10 percent last week, 27 percent last year, and a 5-year average of 21 percent. In Tennessee, this week’s Crop Progress report indicated soybean planting at 50 percent compared to 35 percent last week, 41 percent last year, and a 5-year average of 35 percent; and soybeans emerged at 21 percent compared to 7 percent last week, 21 percent last year, and a 5-year average of 18 percent. November/September 2016 soybean-to-corn price ratio was 2.55 at the end of the week. In Tennessee, October/November 2016 cash forward contracts averaged $10.33 with a range of $9.89 to $10.71 at elevators and barge points. November 2016 soybean futures closed at $10.56 up 7 cents since last Friday. Downside price protection could be achieved by purchasing a $10.60 November 2016 Put Option which would cost 64 cents and set a $9.96 futures floor.
Cotton
July 2016 cotton futures closed at 64.28 up 2.61 cents since last Friday. July 2016 cotton futures traded between 61.1 and 64.59 cents this week. Adjusted world price (AWP) increased 1.08 cents to 51.5 cents per pound. Delta upland cotton spot price quotes for May 26 were 64.58 cents/lb (41-4-34) and 67.33 cents/lb (31-3-35). Net sales reported by exporters were up from last week with net sales of 128,500 bales for the 2015/16 marketing year and 119,200 bales for the 2016/17 marketing year. Exports for the same period were up from last week at 236,500 bales. Upland cotton export sales were 99 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 104 percent.
October 2016 cotton futures closed at 64.37 up 2.26 cents since last Friday. Jul/Oct and Jul/Dec cotton futures spreads were 0.09 cents and -0.43 cents, respectively. This week’s Crop Progress report estimated cotton planted at 46 percent compared to 40 percent last week, 44 percent last year, and a 5-year average of 54 percent. In Tennessee, this week’s Crop Progress report indicated cotton planting at 67 percent compared to 50 percent last week, 64 percent last year, and a 5-year average of 55 percent. December 2016 cotton futures closed at 63.85 up 2.52 cents since last Friday. Downside price protection could be obtained by purchasing a 64 cent December 2016 Put Option costing 3.45 cents establishing a 60.55 cent futures floor.
Wheat
July 2016 wheat futures closed at $4.81 up 14 cents since last Friday. July 2016 wheat futures traded between $4.57 and $4.84 this week. July wheat-to-corn price ratio was 1.17. Net sales reported by exporters were within expectations with net sales cancelations of 0.4 million bushels for the 2015/16 marketing year and net sales of 13.0 million bushels for the 2016/17 marketing year. Exports for the same period were down from last week at 12.7 million bushels. Wheat export sales were 98 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 105 percent. In Memphis, old crop cash wheat traded between $4.52 and $4.71 for the week. Jul/Sep and Jul/Dec future spreads were 10 cents and 27 cents, respectively.
In Tennessee, June/July cash forward contracts averaged $4.63 with a range of $4.22 to $4.91. Nationally, winter wheat condition was estimated at 62 percent good-to-excellent and 8 percent poor-to-very poor; winter wheat headed at 75 percent compared to 68 percent last week, 74 percent last year, and a 5-year average of 66 percent; spring wheat condition at 69 percent good-to-excellent and 4 percent poor-to-very poor; spring wheat planted at 95 percent compared to 89 percent last week, 95 percent last year, and a 5-year average of 77 percent; and spring wheat emerged at 78 percent compared to 60 percent last week, 76 percent last year, and a 5-year average of 51 percent. In Tennessee, winter wheat condition was reported as 83 percent good-to-excellent and 2 percent poor-to-very poor; winter wheat headed 99 percent compared to 66 percent last week, 98 percent last year, and a 5-year average of 97 percent; and winter wheat coloring at 25 percent compared to 27 percent last year. Downside price protection could be obtained by purchasing a $4.85 July 2016 Put Option costing 12 cents establishing a $4.73 futures floor. September 2016 wheat futures closed at $4.91 up 12 cents since last Friday. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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