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Have A Flexible Plan Due To The Volatility In Grain Markets
DR. AARON SMITH
KNOXVILLE, TENN.
Corn, soybeans, cotton, and wheat were down for the week. Weather and macro-economic factors triggered large declines in grains and oilseeds this week. Increased rain forecasted for most of the Corn Belt and the U.K. vote to leave the E.U. were major market movers this week. Both of these factors will continue to weigh on commodity markets as there is a tremendous amount of uncertainty moving forward for both. On April 1, December corn achieved a contract low of $3.64. On June 17, two and a half months later, the contract peaked at $4.49, a gain of 85 cents. This week it took four trading days to give back 55 cents or almost 65 percent of the gain from April1 to June17. December corn is now 30 cents from the contract low. By comparison, the correction in soybeans has been far less dramatic. On April 1, November soybeans had a low of $9.22, appreciated to a high of $11.86 on June 13 (a gain of $2.64), and then closed Friday at $10.78 a decrease of $1.08 from the high or 41 percent of the initial gain (April 1 to June 13). December wheat had a contract high of $5.51 on June 8. Since then wheat has plummeted more than 70 cents to establish a new contract low of $4.73. This is a 15 percent drop in the value of December wheat futures in just over two weeks. Presently, the underlying supply and demand fundamentals for wheat and corn are much weaker than soybeans so be sure to consider this in your risk management and marketing plans.
As mentioned in last week’s crop comments, the volatility in grain and oilseed markets create a difficult marketing environment for producers. As such, it is important have a flexible marketing plan that allows you to continue to reevaluate changes in the market and implement a course of action. That being said, producers should be cautioned to not have reactionary response (based on emotion) to this week’s dramatic declines. There is still time between now and harvest to get some additional pricing completed, so don’t panic. Analyze how much of your crop is priced and what your production potential is for each field. Hopefully, producers were able to take advantage of the rally in grains and oilseeds the last two months but if not be patient as we will likely still see some opportunities to price corn and soybeans at higher prices than those offered today. Marketing opportunities can appear just as fast as they disappear so make sure you know your price points (the price you are comfortable adding sales) and production estimates required to react to opportunities that emerge. Lastly, hind sight is always 20/20, so do not dwell on the past or have a knee jerk reaction to an abrupt decline, as this can compound mistakes.
Corn
July 2016 corn futures closed at $3.84 down 53 cents since last Friday. July 2016 corn futures traded between $3.73 and $4.35 for the week. Across Tennessee, average basis (cash price-nearby futures price) strengthened at Northwest Barge Points, Memphis, Lower-middle, Upper-middle, and Northwest Tennessee. Overall, basis for the week ranged from 9 under to 40 over the July futures contract with an average of 13 over at the end of the week. Ethanol production for the week ending June 17 was 962,000 barrels per day down 51,000 from last week. Ethanol stocks were 21.110 million barrels, down 72,000 barrels. Corn net sales reported by exporters from June 10-16 were above expectations with net sales of 34.3 million bushels for the 2015/16 marketing year and 21.7 million bushels for the 2016/17 marketing year. Exports for the same time period were down from last week at 55.9 million bushels. Corn 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 99 percent.
September 2016 corn futures closed at $3.89 down 53 cents since last Friday. Jul/Sep and Jul/Dec future spreads were 5 and 10 cents, respectively. This week’s Crop Progress report estimated corn condition at 75 percent good-to-excellent and 4 percent poor-to-very poor. In Tennessee, this week’s Crop Progress report indicated corn condition at 76 percent good-to-excellent and 5 percent poor-to-very poor; and corn emerged at 99 percent compared to 99 percent last week, 98 percent last year, and a 5-year average of 99 percent. In Tennessee, September 2016 cash forward contracts averaged $4.02 with a range of $3.73 to $4.41. December 2016 corn futures closed at $3.94 down 54 cents since last Friday. Downside price protection could be obtained by purchasing a $4.00 December 2016 Put Option costing 33 cents establishing a $3.67 futures floor.
Soybeans
July 2016 soybean futures closed at $11.03 down 56 cents since last Friday. July 2016 soybean futures traded between $10.99 and $11.56. For the week, average soybean basis strengthened at Memphis, Northwest Barge Points, Northwest, and Upper-middle Tennessee and weakened at Lower-middle Tennessee. Basis ranged from 35 under to 25 over the July futures contract at elevators and barge points. Average basis at the end of the week was 10 under the July futures contract. Net sales reported by exporters were within expectations with net sales of 24.3 million bushels for the 2015/16 marketing year and net sales of 24.3 million bushels for the 2016/17 marketing year. Exports for the same period were up from last week at 10.5 million bushels. Soybean export sales and commitments were 104 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 102 percent. July soybean-to-corn price ratio was 2.87 at the end of the week.
August 2016 soybean futures closed at $11.01 down 59 cents since last Friday. Jul/Aug and Jul/Nov future spreads were -2 cents and -25 cents, respectively. This week’s Crop Progress report estimated soybean condition at 73 percent good-to-excellent and 5 percent poor-to-very-poor; soybeans planted at 96 percent compared to 92 percent last week, 89 percent last year, and a 5-year average of 93 percent; and soybeans emerged at 89 percent compared to 79 percent last week, 81 percent last year, and a 5-year average of 84 percent. In Tennessee, this week’s Crop Progress report indicated soybean condition at 76 percent good-to-excellent and 4 percent poor-to-very poor; soybeans planted at 85 percent compared to 74 percent last week, 79 percent last year, and a 5-year average of 81 percent; and soybeans emerged at 70 percent compared to 60 percent last week, 61 percent last year, and a 5-year average of 62 percent. November/September 2016 soybean-to-corn price ratio was 2.77 at the end of the week. In Tennessee, October/November 2016 cash forward contracts averaged $11.11 with a range of $10.67 to $11.51 at elevators and barge points. November 2016 soybean futures closed at $10.78 down 70 cents since last Friday. Downside price protection could be achieved by purchasing a $10.80 November 2016 Put Option which would cost 65 cents and set a $10.15 futures floor.
Cotton
July 2016 cotton futures closed at 64.50 down 0.07 cents since last Friday. July 2016 cotton futures traded between 62.45 and 65.45 cents this week. Adjusted world price (AWP) increased 1.08 cents to 55.48 cents per pound. Delta upland cotton spot price quotes for June 16 were 65.12 cents/lb (41-4-34) and 67.87 cents/lb (31-3-35). Net sales reported by exporters were up from last week with net sales of 170,000 bales for the 2015/16 marketing year and 96,700 bales for the 2016/17 marketing year. Exports for the same period were up from last week at 165,100 bales. Upland cotton export sales were 104 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 107 percent.
October 2016 cotton futures closed at 64.83 down 1.42 cents since last Friday. Jul/Oct and Jul/Dec cotton futures spreads were 0.33 cents and -0.08 cents, respectively. This week’s Crop Progress report estimated cotton condition at 54 percent good-to-excellent and 8 percent poor-to-very poor; cotton planted at 95 percent compared to 89 percent last week, 93 percent last year, and a 5-year average of 98 percent; and cotton squaring at 22 percent compared to 13 percent last week, 19 percent last year, and a 5-year average of 21 percent. In Tennessee, this week’s Crop Progress report indicated cotton condition at 79 percent good-to-excellent and 4 percent poor-to-very poor; cotton planted at 99 percent compared to 99 percent last week, 100 percent last year, and a 5-year average of 99 percent; and cotton squaring at 24 percent compared to 15 percent last week, 17 percent last year, and a 5-year average of 22 percent. December 2016 cotton futures closed at 64.42 down 1.5 cents since last Friday. Downside price protection could be obtained by purchasing a 65 cent December 2016 Put Option costing 3.38 cents establishing a 61.62 cent futures floor. March 2017 cotton futures closed at 65.01 down 1.08 cents since last Friday.
Wheat
July 2016 wheat futures closed at $4.54 down 27 cents since last Friday. July 2016 wheat futures traded between $4.41 and $4.80 this week. July wheat-to-corn price ratio was 1.23. In Tennessee, June/July cash prices averaged $4.52 with a range of $4.24 to $4.78. Nationally, winter wheat condition was estimated at 61 percent good-to-excellent and 9 percent poor-to-very poor; winter wheat harvested at 25 percent compared to 11 percent last week, 17 percent last year, and a 5-year average of 28 percent; and spring wheat condition at 76 percent good-to-excellent and 4 percent poor-to-very poor; and spring wheat headed at 28 percent compared to 19 percent last year and a 5-year average of 14 percent. In Tennessee, winter wheat condition was reported as 84 percent good-to-excellent and 2 percent poor-to-very poor; winter wheat coloring at 99 percent compared to 97 percent last week, 97 percent last year, and a 5-year average 98 percent; winter wheat mature at 80 percent compared to 81 percent last year and a 5-year average of 70 percent; and winter wheat harvested at 50 percent compared to 21 percent last week, 44 percent last year, and a 5-year average 52 percent.
Net sales reported by exporters were within expectations with net sales of 17.0 million bushels for the 2016/17 marketing year and 0.1 million bushels for the 207/18 marketing year. Exports for the week were up from last week at 21.3 million bushels. Wheat export sales were 29 percent of the USDA estimated total annual exports for the 2016/17 marketing year (June 1 to May 31), compared to a 5-year average of 28%. Jul/Sep and Jul/Dec future spreads were 11 cents and 30 cents, respectively. September 2016 wheat futures closed at $4.65 down 29 cents since last Friday. December wheat-to-corn price ratio was 1.23. July 2017 wheat futures closed at $5.20 down 32 cents since last Friday. Downside price protection could be obtained by purchasing a $5.30 July 2017 Put Option costing 53 cents establishing a $4.77 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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