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Four Factors Provide Price Bump In Soybeans
DR. AARON SMITH
KNOXVILLE, TENN.
Corn, soybeans, and wheat were up; cotton was mixed for the week. Looking at the November soybean futures chart it can be seen that the November contract is now almost $2.00/bu higher than the same time last year. The four primary reasons for this dramatic increase were: 1) the weather related supply disruption in South America; 2) the weakening of the USD; 3) domestic concerns over the transition of El Nino to La Nina potentially contributing to a drier summer forecast and lower domestic production; and 4) increased projected global and domestic demand for soybeans. Moving forward these four factors will continue to provide price direction in soybeans. The next key report, for soybeans will be the June 30th Acreage report. Many will be anticipating a 0.5-2.5 million acre increase from the March Prospective Planting report estimate of 82.2 million acres. Soybeans have definitely been the largest gainer this spring; however other crops have also done much better than what was anticipated this past winter. December corn futures are back over $4.00 for the first time since late July 2015; Cotton futures have pulled back up into the 62-65 cent trading range after spending most of the spring below 60 cents; and even wheat is starting to move above $5.00. Higher prices are undoubtedly welcomed by producers; however they should remain vigilant in their marketing and actively secure profits when they are available. Weather will likely be the dominant factor moving forward and we all know how quickly agriculture producers’ fortunes can change with the weather.
Corn
July 2016 corn futures closed at $4.18 up 6 cents since last Friday. July 2016 corn futures traded between $4.01 and $4.19 for the week. Across Tennessee, average basis (cash price-nearby futures price) weakened at Memphis, Lower-middle, and Upper-middle Tennessee and strengthened or remained unchanged at Northwest Barge Points and Northwest Tennessee. Overall, basis for the week ranged from 9 under to 40 over the July futures contract with an average of 7 over at the end of the week. Ethanol production for the week ending May 27 was 960,000 barrels per day up 14,000 from last week. Ethanol stocks were 20.769 million barrels, down 44,000 barrels. Corn net sales reported by exporters from May 20-26 were within expectations with net sales of 51.9 million bushels for the 2015/16 marketing year and 5.1 million bushels for the 2016/17 marketing year. Exports for the same time period were down from last week at 29.6 million bushels. Corn export sales and commitments were 98 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 97 percent.
September 2016 corn futures closed at $4.19 up 5 cents since last Friday. Jul/Sep and Jul/Dec future spreads were 1 and 1 cent, respectively. This week’s Crop Progress report estimated corn condition at 72 percent good-to-excellent and 4 percent poor-to-very poor; corn planted at 94 percent compared to 86 percent last week, 94 percent last year, and a 5-year average of 92 percent; and corn emerged at 78 percent compared to 60 percent last week, 81 percent last year, and a 5-year average of 75 percent. In Tennessee, this week’s Crop Progress report indicated corn condition at 74 percent good-to-excellent and 2 percent poor-to-very poor; corn planted at 98% compared to 97 percent last week, 98 percent last year, and a 5-year average of 96 percent; and corn emerged at 94 percent compared to 89 percent last week, 90 percent last year, and a 5-year average of 88 percent. In Tennessee, September 2016 cash forward contracts averaged $4.06 with a range of $3.81 to $4.30. December 2016 corn futures closed at $4.19 up 6 cents since last Friday. Downside price protection could be obtained by purchasing a $4.20 December 2016 Put Option costing 33 cents establishing a $3.87 futures floor.
Soybeans
July 2016 soybean futures closed at $11.32 up 46 cents since last Friday. July 2016 soybean futures traded between $10.68 and $11.69. For the week, average soybean basis strengthened at Memphis and weakened or remained unchanged at Northwest Barge Points, Northwest, Upper-middle, and Lower-middle Tennessee. Basis ranged from 60 under to 20 over the July futures contract at elevators and barge points. Average basis at the end of the week was 13 under the July futures contract. Net sales reported by exporters were above expectations with net sales of 11.4 million bushels for the 2015/16 marketing year and net sales of 27.1 million bushels for the 2016/17 marketing year. Exports for the same period were up from last week at 7.8 million bushels. Soybean export sales and commitments were 101% 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 2.71 at the end of the week.
August 2016 soybean futures closed at $11.22 up 39 cents since last Friday. Jul/Aug and Jul/Nov future spreads were -10 cent and -47 cents, respectively. This week’s Crop Progress report estimated soybeans planted at 73 percent compared to 56 percent last week, 68 percent last year, and a 5-year average of 66 percent; and soybeans emerged at 45 percent compared to 22 percent last week, 44 percent last year, and a 5-year average of 40 percent. In Tennessee, this week’s Crop Progress report indicated soybeans planted at 59 percent compared to 50 percent last week, 47 percent last year, and a 5-year average of 46 percent; and soybeans emerged at 37 percent compared to 21 percent last week, 31 percent last year, and a 5-year average of 27 percent. November/September 2016 soybean-to-corn price ratio was 2.59 at the end of the week. In Tennessee, October/November 2016 cash forward contracts averaged $10.62 with a range of $10.16 to $11.04 at elevators and barge points. November 2016 soybean futures closed at $10.85 up 29 cents since last Friday. Downside price protection could be achieved by purchasing an $11.00 November 2016 Put Option which would cost 77 cents and set a $10.23 futures floor.
Cotton
July 2016 cotton futures closed at 63.92 down 0.36 cents since last Friday. July 2016 cotton futures traded between 62.81 and 64.46 cents this week. Adjusted world price (AWP) increased 2.25 cents to 53.75 cents per pound. Delta upland cotton spot price quotes for June 3 were 63.12 cents/lb (41-4-34) and 65.87 cents/lb (31-3-35). Net sales reported by exporters were down from last week with net sales of 124,900 bales for the 2015/16 marketing year and 74,300 bales for the 2016/17 marketing year. Exports for the same period were up from last week at 237,300 bales. Upland cotton export sales were 100 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 64.31 down 0.06 cents since last Friday. Jul/Oct and Jul/Dec cotton futures spreads were 0.99 cents and -0.01 cents, respectively. This week’s Crop Progress report estimated cotton planted at 59 percent compared to 46 percent last week, 57 percent last year, and a 5-year average of 69 percent; and cotton squaring at 5 percent compared to 2 percent last year and a 5-year average of 5 percent. In Tennessee, this week’s Crop Progress report indicated cotton planted at 89 percent compared to 67 percent last week, 82 percent last year, and a 5-year average of 75 percent; and cotton squaring at 11 percent compared to a 5-year average of 0 percent. December 2016 cotton futures closed at 63.91 up 0.06 cents since last Friday. Downside price protection could be obtained by purchasing a 64 cent December 2016 Put Option costing 4.09 cents establishing a 59.91 cent futures floor.
Wheat
July 2016 wheat futures closed at $4.97 up 16 cents since last Friday. July 2016 wheat futures traded between $4.63 and $4.98 this week. July wheat-to-corn price ratio was 1.19. Net sales reported by exporters were within expectations with net sales of 3.9 million bushels for the 2015/16 marketing year and net sales of 14.1 million bushels for the 2016/17 marketing year. Exports for the same period were up from last week at 14.5 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 104 percent. In Memphis, old crop cash wheat traded between $4.43 and $4.55 for the week. Jul/Sep and Jul/Dec future spreads were 9 cents and 26 cents, respectively.
In Tennessee, June/July cash forward contracts averaged $4.70 with a range of $4.25 to $5.05. Nationally, winter wheat condition was estimated at 63 percent good-to-excellent and 8 percent poor-to-very poor; winter wheat headed at 84 percent compared to 75 percent last week, 82 percent last year, and a 5-year average of 76 percent; spring wheat condition at 79 percent good-to-excellent and 2 percent poor-to-very poor; and spring wheat emerged at 88 percent compared to 78 percent last week, 88 percent last year, and a 5-year average of 66 percent. In Tennessee, winter wheat condition was reported as 80 percent good-to-excellent and 3 percent poor-to-very poor; winter wheat headed 99 percent compared to 99 percent last week, 100 percent last year, and a 5-year average of 100 percent; and winter wheat coloring at 69 percent compared to 25 percent last week and 62 percent last year. September 2016 wheat futures closed at $5.06 up 15 cents since last Friday. Downside price protection could be obtained by purchasing a $5.60 July 2017 Put Option costing 51 cents establishing a $5.09 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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