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Weather Permitting, Bin-Busting Harvest Predicted In Brazil, Argentina
DR. AARON SMITH
KNOXVILLE, TENN.
Corn, cotton, soybeans, and wheat were down for the week. The markets played the role of the Grinch this week as all four commodities were down substantially since last Friday. Continued advantageous weather in South America and a new high in the USD Index were the primary contributors to declining prices. Many analysts are predicting a bin busting harvest for Brazil and Argentina. For the South American soybean crop, January, February, and March weather will be very important as these are the critical filling and harvesting months. Additionally, if a record crop is produced concerns may arise due to inadequate infrastructure and logistics to get the crop from the principle growing regions to port.
Soybean prices are likely to remain volatile as weather in South America will continue to drive global soybean markets. For the 2016/17 marketing year the USDA projects U.S., Brazil, and Argentina will produce 82 percent of global soybeans. As such, any production disruption in those three countries could swing prices dramatically.
For the other three commodities the top three producing nations and percent of global production are: corn (U.S., China, and Brazil) – 67 percent of global production; cotton (India, China, and U.S.) – 62 percent of global production; and wheat (E.U., China, and India) 48 percent of global production.
One of the primary differences between soybeans and the other three crops is China. China is one of the largest producers of wheat, corn, and cotton, while China’s soybean production is negligible (approximately 460 million bushels). Furthermore, China is the largest consumer of agricultural commodities. Currently, China is ranked number one in soybean and cotton consumption and number two in wheat and corn consumption, behind the EU and U.S., respectively.
With limited domestic soybean production China must purchase soybeans from at least one of the three primary soybean producing nations Argentina, Brazil, and the U.S. The larger the upcoming South American supply the lower the price and thus increased likelihood that China will purchase more from our South American rivals.
Corn
March 2017 corn futures closed at $3.45 down 11 cents since last Friday. March 2017 corn futures traded between $3.45 and $3.56 for the week. Across Tennessee, average basis (cash price-nearby futures price) strengthened or remained unchanged at Northwest Barge Points, Northwest, and Lower-middle Tennessee and weakened at Memphis and Upper-middle Tennessee. Overall, basis for the week ranged from 10 under to 25 over the March futures contract with an average of 7 over at the end of the week. Ethanol production for the week ending December 16 was 1.036 million barrels per day down 4,000 from last week. Ethanol stocks were 19.06 million barrels, down 16,000 barrels. Mar/May and Mar/Dec future spreads were 7 and 31 cents, respectively.
May 2017 corn futures closed at $3.52 down 11 cents since last Friday. Corn net sales reported by exporters from December 9-15 were above expectations with net sales of 49.2 million bushels for the 2016/17 marketing year. Exports for the same time period were down from last week at 30.7 million bushels. Corn export sales and commitments were 61 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 56 percent. In Tennessee, September 2017 cash forward contracts averaged $3.62 with a range of $3.52 to $3.85. December 2017 corn futures closed at $3.76 down 10 cents since last Friday. Downside price protection could be obtained by purchasing a $3.80 December 2017 Put Option costing 34 cents establishing a $3.46 futures floor.
Soybeans
January 2017 soybean futures closed at $9.89 down 47 cents since last Friday. January 2017 soybean futures traded between $9.87 and $10.39. For the week, average soybean basis strengthened in Northwest, Upper-middle, and Lower-middle Tennessee and weakened at Northwest Barge Points and Memphis. Basis ranged from 30 under to 20 over the January futures contract at elevators and barge points. Average basis at the end of the week was 1 over the January futures contract. March soybean-to-corn futures price ratio was 2.89 at the end of the week.
Jan/Mar and Jan/Nov future spreads were 8 cents and -8 cents, respectively. March 2017 soybean futures closed at $9.97 down 49 cents since last Friday. Net sales reported by exporters were above expectations with net sales of 66.6 million bushels for the 2016/17 marketing year and 0.2 million bushels for the 2017/18 marketing year. Exports for the same period were down from last week at 66.2 million bushels. Soybean export sales and commitments were 84 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 78 percent. In Tennessee, October / November 2017 cash contracts average $9.90 with a range of $9.52 to $10.18. November/December 2017 soybean-to-corn price ratio was 2.61 at the end of the week. November 2017 soybean futures closed at $9.81 down 38 cents since last Friday. Downside price protection could be achieved by purchasing a $10.00 November 2017 Put Option which would cost 71 cents and set a $9.29 futures floor.
Cotton
March 2017 cotton futures closed at 69.87 down 1.17 cents since last Friday. March 2017 cotton futures traded between 69.32 and 71 cents this week. Delta upland cotton spot price quotes for December 22 were 70.7 cents/lb (41-4-34) and 72.95 cents/lb (31-3-35). Adjusted world price (AWP) decreased 0.88 cents to 60.04 cents per pound. May 2017 cotton futures closed at 70.27 down 1.05 cents since last Friday.
Mar/May and Mar/Dec cotton futures spreads were 0.4 cents and -0.9 cents, respectively. Net sales reported by exporters were down from last week with net sales of 276,700 bales for the 2016/17 marketing year. Exports for the same period were up from last week at 210,200 bales. Upland cotton export sales were 70 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 72 percent. December 2017 cotton futures closed at 68.97 down 0.53 cents since last Friday. Downside price protection could be obtained by purchasing a 69 cent December 2017 Put Option costing 4.57 cents establishing a 64.43 cent futures floor.
Wheat
March 2017 wheat futures closed at $3.93 down 16 cents since last Friday. March 2017 wheat futures traded between $3.92 and $4.13 this week. Wheat net sales reported by exporters were below expectations with net sales of 10.9 million bushels for the 2016/17 marketing year. Exports for the week were down from last week at 15.1 million bushels. Wheat export sales were 77 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 75 percent. March wheat-to-corn price ratio was 1.14. In Memphis, old crop cash wheat ranged from $3.97 to $4.05.
Mar/May and Mar/Jul future spreads were 13 cents and 27 cents, respectively. May 2017 wheat futures closed at $4.06 down 15 cents since last Friday. May 2017 wheat-to-corn price ratio was 1.15. In Tennessee, June/July 2017 cash wheat ranged from $3.94 to $4.46. July 2017 wheat futures closed at $4.20 down 14 cents since last Friday. Downside price protection could be obtained by purchasing a $4.30 July 2017 Put Option costing 32 cents establishing a $3.98 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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