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USDA Has Potential To Provide Headwinds For Agricultural Exports
DR. AARON SMITH
KNOXVILLE, TENN.
Corn, soybeans, cotton, and wheat were down for the week. For the month of November, March 2017 corn futures closed down 14 ¼ cents, opening at $3.62 ¾ and closing at $3.48 ½; January soybeans closed up 20 ½ cents, opening at $10.11 ¾ and closing at $10.32 ¼; March cotton closed up 2.21 cents, opening at 69.37 and closing at 71.58; and March wheat closed down 31 cents, opening at $4.33 ¾ and closing at $4.02 ¾. Large gains in November occurred for the DJIA – up 981 points closing at 19,124 (up 5.4 percent), the Shanghai Composite Index – up 4.8 percent, and the USD index – up 3.2 percent closing at 101.54. The USD has the potential to provide severe headwinds to agricultural exports if it continues to strengthen into the New Year.
Exports continue to be an important factor in price direction as we wait for more detail on the South American crop. Corn accumulated exports in week 13 of the marketing year are 76 percent ahead of last year’s pace at 462 million bushels exported. Soybean export sales continue to be impressive. Total accumulated soybean exports for the marketing year are up 25 percent compared to last year at this time (week 13 of the marketing year); ahead of the pace needed to meet current USDA export projections of 2.05 billion bushels for the 2017/18 marketing year. Soybean oil and meal accumulated exports are 7 percent above and 20 percent below last year’s pace, 8 weeks into their marketing years. In week 17 of its marketing year, accumulated cotton exports are 59 percent above last year’s total at 2.586 million running bales. Wheat is currently 26 weeks into its marketing year and accumulated exports are 27 percent above last year. Exports will need to continue the robust pace set early in the marketing year in order to meet USDA export targets and maintain/improve producer price prospects.
Corn
March 2017 corn futures closed at $3.47 down 11 cents since last Friday. March 2017 corn futures traded between $3.41 and $3.62 for the week. Across Tennessee, average basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis, Northwest Barge Points, Northwest, Upper-middle, and Lower-middle Tennessee. Overall, basis for the week ranged from 25 under to 25 over the March futures contract with an average of 2 under at the end of the week. Ethanol production for the week ending November 25 was 1,012,000 barrels per day down 2,000 from last week. Ethanol stocks were 18.448 million barrels, down 504,000 barrels. Mar/May and Mar/Dec future spreads were 7 and 30 cents, respectively. In Tennessee, January 2017 cash forward contracts averaged $3.59 with a range of $3.43 to $3.93.
May 2017 corn futures closed at $3.54 down 11 cents since last Friday. Corn net sales reported by exporters from November 18-24 were below expectations with net sales of 30 million bushels for the 2016/17 marketing year. Exports for the same time period were up from last week at 31.8 million bushels. Corn export sales and commitments were 53 percent of the USDA estimated total annual exports for the 2016/17 marketing year (September 1 to August 31) compared to a 5-year average of 51 percent. December 2017 corn futures closed at $3.77 down 10 cents since last Friday. Downside price protection could be obtained by purchasing a $3.80 December 2017 Put Option costing 32 cents establishing a $3.48 futures floor.
Soybeans
January 2017 soybean futures closed at $10.27 down 19 cents since last Friday. January 2017 soybean futures traded between $10.22 and $10.65. 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 37 under to 6 over the January futures contract at elevators and barge points. Average basis at the end of the week was 8 under the January futures contract. March soybean-to-corn futures price ratio was 2.99 at the end of the week. In Tennessee, January cash contracts average $10.33 with a range of $9.90 to $10.67.
Jan/Mar and Jan/Nov future spreads were 10 cents and -12 cents, respectively. March 2017 soybean futures closed at $10.37 down 17 cents since last Friday. Net sales reported by exporters were above expectations with net sales of 51.4 million bushels for the 2016/17 marketing year and 2.4 million bushels for the 2017/18 marketing year. Exports for the same period were down from last week at 87.6 million bushels. Soybean export sales and commitments were 75 percent of the USDA estimated total annual exports for the 2016/17 marketing year (September 1 to August 31), compared to a 5-year average of 72 percent. November 2017 soybean futures closed at $10.15 down 11 cents since last Friday. November/December 2017 soybean-to-corn price ratio was 2.69 at the end of the week. Downside price protection could be achieved by purchasing a $10.20 November 2017 Put Option which would cost 67 cents and set a $9.53 futures floor.
Cotton
March 2017 cotton futures closed at 71.04 down 0.21 cents since last Friday. March 2017 cotton futures traded between 70.05 and 72.3 cents this week. Delta upland cotton spot price quotes for December 1 were 71.4 cents/lb (41-4-34) and 73.65 cents/lb (31-3-35). Adjusted world price (AWP) decreased 0.56 cents to 60.66 cents per pound. This week’s Crop Progress report estimated cotton harvested at 77 percent compared to 66 percent last week, 77 percent last year, and a 5-year average of 84 percent. In Tennessee, this week’s Crop Progress report indicated cotton harvested at 100 percent compared to 97 percent last week, 94 percent last year, and a 5-year average of 91 percent. May 2017 cotton futures closed at 71.53 down 0.37 cents since last Friday.
Mar/May and Mar/Dec cotton futures spreads were 0.49 cents and -1.11 cents, respectively. Net sales reported by exporters were down from last week with net sales of 202,300 bales for the 2016/17 marketing year. Exports for the same period were up from last week at 144,100 bales. Upland cotton export sales were 62 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 66 percent. December 2017 cotton futures closed at 69.93 down 0.29 cents since last Friday. Downside price protection could be obtained by purchasing a 70 cent December 2017 Put Option costing 4.78 cents establishing a 65.22 cent futures floor.
Wheat
March 2017 wheat futures closed at $4.04 down 15 cents since last Friday. March 2017 wheat futures traded between $3.93 and $4.21 this week. Wheat net sales reported by exporters were within expectations with net sales of 17.8 million bushels for the 2016/17 marketing year and 0.3 million bushels for the 2017/18 marketing year. Exports for the week were down from last week at 8.8 million bushels. Wheat export sales were 72 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 70 percent. March wheat-to-corn price ratio was 1.16.
Mar/May and Mar/Jul future spreads were 13 cents and 27 cents, respectively. May 2017 wheat futures closed at $4.17 down 17 cents since last Friday. May 2017 wheat-to-corn price ratio was 1.18. Nationally, the Crop Progress report indicated winter wheat condition at 58 percent good-to-excellent and 10 percent poor-to-very poor; and winter wheat emerged at 92 percent compared to 89 percent last week, 92 percent last year, and a 5-year average of 92 percent. In Tennessee, winter wheat condition was estimated at 34 percent good-to-excellent and 27 percent poor-to-very poor; and winter wheat emerged at 76 percent compared to 66 percent last week, 86 percent last year, and a 5-year average of 75 percent. In Tennessee, June/July 2017 cash wheat ranged from $3.94 to $4.53. July 2017 wheat futures closed at $4.31 down 18 cents since last Friday. Downside price protection could be obtained by purchasing a $4.40 July 2017 Put Option costing 35 cents establishing a $4.05 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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