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Corn Acreage Reduction May Create Moderate Rally
DR. AARON SMITH
KNOXVILLE, TENN.
Corn and cotton were up; soybeans and wheat were down for the week. There were limited gains and losses for the week across all four commodities as most contracts traded flat for the week.
For December corn, early week losses were more than offset by daily gains at the end of the week. Domestic planted acreage, for corn, will be closely watched. If estimates continue to indicate a reduction in corn acreage a moderate rally could occur. This week’s export sales were also a pleasant surprise for prices.
November soybeans continued to slide lower this week and are now 40 cents lower than the start of March. Soybeans continue to face headwinds due to the record South American crop, greater projected planted acreage in the U.S., and a strong USD. There is strong support in the November contract near $9.80. The USDA’s Prospective Plantings report, at the end of the month could provide some additional price volatility.
Nearby cotton futures continue to close in on 80 cents while the harvest contract remains bogged down in between 75 and 76 cents. Pricing some 2017 cotton production with futures above 75 cents is a prudent risk management decision. Increased domestic acreage and an uncertain trade environment provide downside risk for harvest cotton futures.
After a moderate spring bounce (up to a high of $4.83) July wheat futures have retreated over 30 cents and are now trading around $4.50. For those in Tennessee that are concerned about damage to their wheat crop due to low temperatures it is strongly advisable to contact your crop insurance representative to discuss options and a time line to make an informed decision.
Corn
May 2017 corn futures closed at $3.67 up 3 cents since last Friday. For the week, May 2017 corn futures traded between $3.60 and $3.67. 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 14 under to 30 over the May futures contract with an average of 10 over at the end of the week. Corn net sales reported by exporters from March 3 were above expectations with net sales of 49.4 million bushels for the 2016/17 marketing year and 8.6 million bushels for the 2017/18 marketing year. Exports for the same time period were up from last week at 62.2 million bushels. Corn export sales and commitments were 80 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 77 percent. Ethanol production for the week ending March 10 was 1.045 million barrels per day up 23,000 from last week. Ethanol stocks were 22.766 million barrels, down 90,000 barrels. May/Jul and May/Dec future spreads were 8 and 22 cents, respectively. July 2017 corn futures closed at $3.75 up 3 cents since last Friday.
In Tennessee, September 2017 cash forward contracts averaged $3.67 with a range of $3.58 to $3.90. December 2017 corn futures closed at $3.89 up 3 cents since last Friday. Downside price protection could be obtained by purchasing a $3.90 December 2017 Put Option costing 31 cents establishing a $3.59 futures floor.
Soybeans
May 2017 soybean futures closed at $10.00 down 6 cents since last Friday. For the week, May 2017 soybean futures traded between $9.92 and $10.10. Average soybean basis strengthened or remained unchanged at Memphis, Northwest Barge Points, Lower-middle, Upper-middle, and Northwest Tennessee. Basis ranged from 38 under to even the May futures contract at elevators and barge points. Average basis at the end of the week was 15 under the May futures contract. Net sales reported by exporters were above expectations with net sales of 17.3 million bushels for the 2016/17 marketing year and 8.3 million bushels for the 2017/18 marketing year. Exports for the same period were down from last week at 31.2 million bushels. Soybean export sales and commitments were 97 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 92 percent. May soybean-to-corn futures price ratio was 2.72 at the end of the week. May/Jul and May/Nov future spreads were 10 cents and -7 cents, respectively. July 2017 soybean futures closed at $10.10 down 6 cents since last Friday.
In Tennessee, October / November 2017 soybean cash contracts average $9.82 with a range of $9.53 to $10.02. November/December 2017 soybean-to-corn price ratio was 2.55 at the end of the week. November 2017 soybean futures closed at $9.93 down 6 cents since last Friday. Downside price protection could be achieved by purchasing a $10.00 November 2017 Put Option which would cost 65 cents and set a $9.35 futures floor.
Cotton
May 2017 cotton futures closed at 78.36 up 1.07 cents since last Friday. For the week, May 2017 cotton futures traded between 76.8 and 78.89 cents. Delta upland cotton spot price quotes for March 16 were 75.67 cents/lb (41-4-34) and 76.92 cents/lb (31-3-35). Adjusted world price (AWP) decreased 0.42 cents to 67.92 cents per pound. Net sales reported by exporters were up from last week with net sales of 316,500 bales for the 2016/17 marketing year and 141,700 bales for the 2017/18 marketing year. Exports for the same period were down from last week at 337,900 bales. Upland cotton export sales were 95 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 91 percent. July 2017 cotton futures closed at 79.38 up 1.01 cents since last Friday. May/Jul and May/Dec cotton futures spreads were 1.02 cents and -2.73 cents, respectively.
December 2017 cotton futures closed at 75.63 up 0.34 cents since last Friday. Downside price protection could be obtained by purchasing a 76 cent December 2017 Put Option costing 4.61 cents establishing a 71.39 cent futures floor.
Wheat
May 2017 wheat futures closed at $4.36 down 4 cents since last Friday. May 2017 wheat futures traded between $4.28 and $4.42 this week. May wheat-to-corn price ratio was 1.19.Wheat net sales reported by exporters were within expectations with net sales of 9.7 million bushels for the 2016/17 marketing year and 2.7 million bushels for the 2017/18 marketing year. Exports for the week were up from last week at 22.8 million bushels. Wheat export sales were 92 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 95 percent. In Memphis, old crop cash wheat ranged from $4.35 to $4.41. May/Jul and May/Sep future spreads were 15 cents and 30 cents, respectively.
In Tennessee, June/July 2017 cash wheat ranged from $4.25 to $4.76. July 2017 wheat futures closed at $4.51 down 5 cents since last Friday. Downside price protection could be obtained by purchasing a $4.60 July 2017 Put Option costing 28 cents establishing a $4.32 futures floor. July 2017 wheat-to-corn price ratio was 1.2. September 2017 wheat futures closed at $4.66 down 5 cents since last Friday. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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