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USDA Decreases Crop Estimate Projections
DR. AARON SMITH
KNOXVILLE, TENN.
Corn, soybeans, and wheat were up; cotton was down for the week. On Thursday the USDA released the Quarterly Grain Stocks, Winter Wheat Seedings, and World Agricultural Supply and Demand Estimates (WASDE) reports.
December 1, corn stocks were estimated at 12.4 billion bushels, up 10 percent compared to 2015; soybean stocks were estimated at 2.90 billion bushels, up 7 percent compared to 2015; and wheat stocks were estimated at 2.07 billion bushels, up 19 percent compared to 2015. Stock estimates were within trade expectations for all three commodities.
U.S. winter wheat planting was estimated at 32.383 million acres down 3.754 million from last year (down 10 percent). In Tennessee, planted wheat acreage was estimated at 370,000 acres down 30,000 from 2016. Wheat acreage was within trade expectations, however was at the lower end of the range. Reduced domestic plantings were canceled out by the 469 million bushel increase in global stocks from the previous marketing year. Sub $5.00 prices will continue until global stocks start to shrink.
Projected domestic corn production was decreased 78 million bushels from last month’s estimate as both yield (0.7 bu/acre) and harvested acres (0.1 million) were decreased. Domestic and foreign ending stocks were decreased, 48 million and 1 million, respectively. Since early October March corn has been ranged bound, between $3.40 and $3.70. This report will not spur a break out in either direction.
U.S. soybean production was decreased 54 million bushels from last month’s estimate as both yield (0.4 bu/acre) and harvested acres (0.3 million) were decreased. Domestic stocks were decreased 60 million bushels. Foreign stocks were increased 41 million due to greater projected Brazilian production. November futures prices above $10.00 represent a good starting point to price up to 25 percent of estimated 2017 production. A tremendous amount of price uncertainty in soybeans has been building (South American production and the potential of trade disruptions with China).
Domestic cotton production was increased 0.44 million bales from last month’s estimate as yield was increased (34 lbs/acre) and harvested acreage was decreased (0.14 million). Foreign and Chinese stocks were both increased from last month’s report (1.3 and 0.5 million bales, respectively). March cotton futures have not been able to hold 75 cents and this report will not help the effort. Cotton futures remain in an upward trend however a leveling off near 75 cents may be likely.
Corn
March 2017 corn futures closed at $3.58 unchanged since last Friday. For the week, March 2017 corn futures traded between $3.52 and $3.60. Across Tennessee, average basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis, Northwest, Upper-middle, and Lower-middle Tennessee and weakened at Northwest Barge Points. Overall, basis for the week ranged from 6 under to 30 over the March futures contract with an average of 15 over at the end of the week. Corn net sales reported by exporters from December 30-January 5 were within expectations with net sales of 23.8 million bushels for the 2016/17 marketing year and 6.0 million bushels for the 2017/18 marketing year. Exports for the same time period were up from last week at 27.3 million bushels. Corn export sales and commitments were 64 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 59 percent. Ethanol production for the week ending January 6 was 1.049 million barrels per day up 6,000 from last week. Ethanol stocks were 20.009 million barrels, up 1,331,000 barrels. Mar/May and Mar/Dec future spreads were 7 and 28 cents, respectively.
May 2017 corn futures closed at $3.65 up 1 cent since last Friday. In Tennessee, September 2017 cash forward contracts averaged $3.70 with a range of $3.60 to $3.96. December 2017 corn futures closed at $3.86 up 1 cent since last Friday. Downside price protection could be obtained by purchasing a $3.90 December 2017 Put Option costing 33 cents establishing a $3.57 futures floor.
Soybeans
March 2017 soybean futures closed at $10.46 up 52 cents since last Friday. For the week, March 2017 soybean futures traded between $9.93 and $10.52. Average soybean basis strengthened or remained unchanged at Northwest, Lower-middle, and Upper-middle Tennessee and weakened at Memphis and Northwest Barge Points. Basis ranged from 37 under to 14 over the March futures contract at elevators and barge points. Average basis at the end of the week was 4 under the March futures contract. Net sales reported by exporters were below expectations with net sales of 12.8 million bushels for the 2016/17 marketing year and 2.1 million bushels for the 2017/18 marketing year. Exports for the same period were down from last week at 52.6 million bushels. Soybean export sales and commitments were 87 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 82 percent. March soybean-to-corn futures price ratio was 2.92 at the end of the week.
Mar/May and Mar/Nov future spreads were 9 cents and -28 cents, respectively. May 2017 soybean futures closed at $10.55 up 52 cents since last Friday. In Tennessee, October / November 2017 cash contracts average $9.96 with a range of $9.67 to $10.25. November/December 2017 soybean-to-corn price ratio was 2.64 at the end of the week. November 2017 soybean futures closed at $10.18 up 36 cents since last Friday. Downside price protection could be achieved by purchasing a $10.20 November 2017 Put Option which would cost 66 cents and set a $9.54 futures floor.
Cotton
March 2017 cotton futures closed at 72.27 down 1.72 cents since last Friday. For the week, March 2017 cotton futures traded between 72 and 74.18 cents. Delta upland cotton spot price quotes for January 12 were 72.34 cents/lb (41-4-34) and 74.59 cents/lb (31-3-35). Adjusted world price (AWP) increased 1.73 cents to 63.34 cents per pound. Net sales reported by exporters were up from last week with net sales of 236,000 bales for the 2016/17 marketing year and 5,700 bales for the 2017/18 marketing year. Exports for the same period were down from last week at 210,500 bales. Upland cotton export sales were 76 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 76 percent. May 2017 cotton futures closed at 72.76 down 1.53 cents since last Friday.
Mar/May and Mar/Dec cotton futures spreads were 0.49 cents and -1.37 cents, respectively. December 2017 cotton futures closed at 70.9 down 0.67 cents since last Friday. Downside price protection could be obtained by purchasing a 71 cent December 2017 Put Option costing 4.42 cents establishing a 67.58 cent futures floor.
Wheat
March 2017 wheat futures closed at $4.26 up 3 cents since last Friday. March 2017 wheat futures traded between $4.12 and $4.30 this week. Wheat net sales reported by exporters were within expectations with net sales of 12.8 million bushels for the 2016/17 marketing year. Exports for the week were down from last week at 6.3 million bushels. Wheat export sales were 81 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 79 percent. March wheat-to-corn price ratio was 1.19. In Memphis, old crop cash wheat ranged from $4.26 to $4.35.
Mar/May and Mar/Jul future spreads were 13 cents and 28 cents, respectively. May 2017 wheat futures closed at $4.39 up 5 cents since last Friday. May 2017 wheat-to-corn price ratio was 1.20. In Tennessee, June/July 2017 cash wheat ranged from $4.21 to $4.68. July 2017 wheat futures closed at $4.54 up 6 cents since last Friday. Downside price protection could be obtained by purchasing a $4.60 July 2017 Put Option costing 31 cents establishing a $4.29 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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