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Record Soybean Production Battles Strong Demand To Spur Price Direction
DR. AARON SMITH
KNOXVILLE, TENN.
Soybeans, cotton, and wheat were down; corn was up for the week. In Tennessee, cash corn prices posted new lows in several regions ($2.89/bu was the lowest price reported by USDA-AMS in the state) before rebounding mildly at the end of the week. Northwest Tennessee has seen the lowest prices in the state while lower-middle Tennessee has had the highest cash prices out of the five regions reporting. The USDA projects Tennessee corn yields at 155 bu/acre, down 5 bu/acre from last year. However, lower-middle Tennessee will likely have lower average yields (and greater variability) than their counterparts in the Northwest. Dry conditions persisted across much of southern-middle Tennessee and northern Alabama leading to lower yields with a greater variance from field-to-field. As a result, this winter we could see basis strengthen above seasonal norms in lower-middle Tennessee.
November soybean futures continued their move lower, reaching a low of $9.37/bu this week, the lowest price since April 12th, 2016. Record domestic production is battling with strong demand to determine price direction. As such, it is likely that volatility in soybeans will continue. However, as we move into the primary harvest period it is likely that the trend in prices will remain lower. In Tennessee, soybean yields are estimated at 46 bu/acre the same as last year and 2.9 bu/acre below the national average yield.
December cotton futures had an up and down week, bouncing between 65 and 68 cents. As we approach harvest, cotton futures will likely remain in a 64 to 70 cent trading range. Fortunately, in Tennessee the cotton crop is in excellent condition with an estimated 80 percent good-to-excellent rating. Currently, the USDA has Tennessee cotton yields projected at 1,000 lbs/acre, down 46 lbs/acre from last year. Greater yields have the potential to offset low prices and lead some Tennessee producers into profitable scenarios.
Sub-four dollar wheat will likely dramatically reduce planted acreage this fall. Wheat continues to suffer from poor market fundamentals, supplies are near all-time highs and demand is stagnant. A record domestic corn crop also does not bode well for improved wheat price prospects.
Corn
December 2016 corn futures closed at $3.28 up 3 cents since last Friday. December 2016 corn futures traded between $3.14 and $3.29 for the week. Across Tennessee, average basis (cash price-nearby futures price) weakened at Memphis, Northwest Barge Points, Northwest, and Upper-middle Tennessee and strengthened at Lower-middle Tennessee. Overall, basis for the week ranged from 27 under to 10 over the December futures contract with an average of 9 under at the end of the week. Ethanol production for the week ending August 19 was 1,023,000 barrels per day down 5,000 from last week. Ethanol stocks were 20.926 million barrels, up 109,000 barrels. This week’s Crop Progress report estimated corn condition at 75 percent good-to-excellent and 7 percent poor-to-very poor; corn dough or beyond at 92 percent compared to 85 percent last week, 90 percent last year, and a 5-year average of 87 percent; corn dented at 60 percent compared to 40 percent last week, 54 percent last year, and a 5-year average of 52 percent; and corn mature at 9 percent compared to 8 percent last year and a 5-year average of 11 percent. In Tennessee, this week’s Crop Progress report indicated corn condition at 67 percent good-to-excellent and 9 percent poor-to-very poor; corn dough or beyond at 99 percent compared to 97 percent last week, 98 percent last year, and a 5-year average of 98 percent; corn dented at 90 percent compared to 81 percent last week, 82 percent last year, and a 5-year average of 86 percent; corn mature at 43 percent compared to 16 percent last week, 20 percent last year, and a 5-year average of 34 percent; and corn harvested at 2 percent compared to 0 percent last year and a 5-year average of 9 percent. Downside price protection could be obtained by purchasing a $3.30 December 2016 Put Option costing 15 cents establishing a $3.15 futures floor.
Corn net sales reported by exporters from August 19-25 were within expectations with net sales of 8.4 million bushels for the 2015/16 marketing year and 25.5 million bushels for the 2016/17 marketing year. Exports for the same time period were up from last week at 57.7 million bushels. Corn export sales and commitments were 102 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 104 percent. Dec/Mar and Dec/Dec future spreads were 10 and 41 cents, respectively. In Tennessee, January 2017 cash forward contracts averaged $3.48 with a range of $3.24 to $3.59. March 2017 corn futures closed at $3.38 up 4 cents since last Friday. December 2017 corn futures closed at $3.69 up 3 cents since last Friday.
Soybeans
November 2016 soybean futures closed at $9.52 down 15 cents since last Friday. November 2016 soybean futures traded between $9.37 and $9.74. For the week, average soybean basis weakened at Memphis, Northwest Barge Points, Upper-middle, Northwest, and Lower-middle Tennessee. Basis ranged from 19 under to 60 over the November futures contract at elevators and barge points. Average basis at the end of the week was 14 over the November futures contract. This week’s Crop Progress report estimated soybean condition at 73 percent good-to-excellent and 7 percent poor-to-very-poor; soybeans setting pods at 91 percent compared to 89 percent last week, 91 percent last year, and a 5-year average of 92 percent; and soybeans dropping leaves at 5 percent compared to 8 percent last year and a 5-year average of 5 percent. In Tennessee, this week’s Crop Progress report indicated soybean condition at 79 percent good-to-excellent and 4 percent poor-to-very poor; soybeans blooming at 99 percent compared to 98 percent last week, 98 percent last year, and a 5-year average of 98 percent; soybeans setting pods at 91 percent compared to 87 percent last week, 88 percent last year, and a 5-year average of 90 percent; and soybeans dropping leaves at 3 percent compared to 3 percent last year and a 5-year average 5 percent. November/December 2016 soybean-to-corn price ratio was 2.9 at the end of the week. Downside price protection could be achieved by purchasing a $9.60 November 2016 Put Option which would cost 30 cents and set a $9.30 futures floor.
Nov/Jan and Nov/Nov future spreads were 3 cents and -25 cents, respectively. In Tennessee, October/November 2016 cash forward contracts averaged $9.54 with a range of $9.18 to $10.04 at elevators and barge points. 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 54.2 million bushels for the 2016/17 marketing year. Exports for the same period were up from last week at 41.1 million bushels. Soybean export sales and commitments were 103 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 104 percent. January 2017 soybean futures closed at $9.55 down 14 cents since last Friday. November 2017 soybean futures closed at $9.27 down 5 cents since last Friday. November/December 2017 soybean-to-corn price ratio was 2.51 at the end of the week.
Cotton
Delta upland cotton spot price quotes for September 1 were 67.51 cents/lb (41-4-34) and 70.26 cents/lb (31-3-35). October 2016 cotton futures closed at 67.51 down 0.2 cents since last Friday. Adjusted world price (AWP) decreased 1.91 cents to 56.9 cents per pound. This week’s Crop Progress report estimated cotton condition at 48 percent good-to-excellent and 16 percent poor-to-very poor; cotton setting bolls at 95 percent compared to 92 percent last week, 91 percent last year, and a 5-year average of 94 percent; and cotton bolls opening at 23 percent compared to 16 percent last week, 20 percent last year, and a 5-year average of 23 percent. In Tennessee, this week’s Crop Progress report indicated cotton condition at 80 percent good-to-excellent and 3 percent poor-to-very poor; cotton setting bolls at 100 percent compared to 97 percent last week, 90 percent last year, and a 5-year average of 95 percent; and cotton bolls opening at 17 percent compared to 9 percent last week, 12 percent last year, and a 5-year average of 19 percent. December 2016 cotton futures closed at 67.79 down 0.24 cents since last Friday. December 2016 cotton futures traded between 65.41 and 68.3 cents this week. Downside price protection could be obtained by purchasing a 68 cent December 2016 Put Option costing 2.94 cents establishing a 65.06 cent futures floor.
Dec/Oct and Dec/Mar cotton futures spreads were -0.28 cents and 0.32 cents, respectively. Net sales reported by exporters were up from last week with net sales of 309,200 bales for the 2016/17 marketing year and net sales of 42,900 bales for the 2016/17 marketing year. Exports for the same period were up from last week at 201,100 bales. Upland cotton export sales were 40 percent of the USDA estimated total annual exports for the 2016/17 marketing year (August 1 to July 31), compared to a 5-year average of 43 percent. March 2017 cotton futures closed at 68.11 down 0.25 cents since last Friday.
Wheat
In Tennessee, August cash wheat prices averaged $3.47 with a range of $3.26 to $4.16 for the week. Nationally, the Crop Progress report indicated spring wheat harvested at 81 percent compared to 65 percent last week, 84 percent last year, and a 5-year average of 62 percent. December 2016 wheat futures closed at $3.99 down 8 cents since last Friday. December 2016 wheat futures traded between $3.86 and $4.07 this week. December wheat-to-corn price ratio was 1.22.
Dec/Mar and Dec/Jul future spreads were 22 cents and 47 cents, respectively.Net sales reported by exporters were below expectations with net sales of 10.3 million bushels for the 2016/17 marketing year and 0.3 million bushels for the 2017/18 marketing year. Exports for the week were up from last week at 21.8 million bushels. Wheat export sales were 46 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 48 percent. March 2017 wheat futures closed at $4.21 down 8 cents since last Friday. March 2017 wheat-to-corn price ratio was 1.25. In Memphis, June/July 2017 cash wheat ranged from $4.24 to $4.34. July 2017 wheat futures closed at $4.46 down 9 cents since last Friday. Downside price protection could be obtained by purchasing a $4.50 July 2017 Put Option costing 41 cents establishing a $4.09 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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