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Soybean Markets Keeping Watchful Eye On Brazil's Political Turmoil
DR. AARON SMITH
KNOXVILLE, TENN.
Corn, soybeans, and wheat were up; cotton was mixed for the week. For the month of May, prices traded: mostly sideways for December corn – opening at $3.89 ½, closing at $3.91, with a trading range of $3.82 to $3.95 ¾; down for November soybeans - opening at $9.56 ¾, closing at $9.18 ¼, with a trading range of $9.15 ½ to $9.80; mostly sideways-to-down for cotton – opening at 74.55 cents, closing at 72.79 cents, with a trading range of 72.15 to 75.15 cents; and sideways-to-down for July wheat – opening at $4.38 ¼, closing at $4.29 ½, with a range of $4.20 to $4.61 ½.
As we move through June and July, prices could be more volatile than the past three months. Nearby cotton futures were the only commodity (corn, soybeans, cotton, and wheat) that had substantial volatility in March, April, and May. Periods of increased volatility often present opportunities to price additional production at higher than anticipated prices. A good example of this is the past two years for December corn. In both 2016 (June) and 2017 (July), December corn traded well above $4.00, peaking at just over $4.50. Both of these price spikes were short lived, lasting less than a month. Given the glut of grains worldwide it seems unlikely that we will get another price spike of similar magnitude; however if weather concerns develop, domestically or in South America, there remains a chance that prices could approach $4.25 sometime in the next 2 months. This summer, if a price spike does occur do not let it pass idly by as it will likely be short in duration.
The political uncertainty in Brazil has caused the Brazilian Real to decrease in value. On May 1, the Brazilian Real closed at 0.31478. Today the Real was trading at 0.30864, a 2 percent decrease relative to the USD in one month. A decrease in the value of the Real makes Brazilian exports (soybeans and corn) cheaper on the world market relative to their US counterparts, thus increasing Brazilian exports – often to the detriment of US exports. However, for Brazilian farmers the opposite is true for their imported inputs (fertilizer and machinery) – a decrease in the value of the Real makes imports more expensive. Soybean markets in particular will be keeping a watchful eye on the political turmoil in Brazil, as there are very important price implications for US producers depending how the situation unfolds.
Corn
July 2017 corn futures closed at $3.72 down 2 cents since last Friday. For the week, July 2017 corn futures traded between $3.66 and $3.76. Across Tennessee, average basis (cash price-nearby futures price) strengthened or remained unchanged at Northwest, Lower-middle, and Upper-middle Tennessee and weakened at Memphis and Northwest Barge Points. Overall, basis for the week ranged from 6 under to 25 over the July futures contract with an average of 3 over at the end of the week. Corn net sales reported by exporters from May 19-25 were within expectations with net sales of 16.2 million bushels for the 2016/17 marketing year and 5.5 million bushels for the 2017/18 marketing year. Exports for the same time period were up from last week at 52.5 million bushels. Corn export sales and commitments were 95 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 96 percent. Ethanol production for the week ending May 26 was 1.020 million barrels per day up 10,000 from last week. Ethanol stocks were 22.763 million barrels, up 79,000 barrels. Jul/Sep and Jul/Dec future spreads were 8 and 19 cents, respectively. September 2017 corn futures closed at $3.80 down 1 cent since last Friday.
Nationally, the Crop Progress report estimated corn planted at 91 percent compared to 84 percent last week, 93 percent last year, and a 5-year average of 93 percent; corn emerged at 73 percent compared to 54 percent last week, 75 percent last year, and a 5-year average of 75 percent; and corn condition at 65 percent good-to-excellent and 7 percent poor-to-very poor. In Tennessee, the Crop Progress report estimated corn condition at 81 percent good-to-excellent 1 percent poor-to-very poor; corn planted at 97 percent compared to 95 percent last week, 98 percent last year, and a 5-year average of 97 percent; and corn emerged at 90 percent compared to 83 percent last week, 93 percent last year, and a 5-year average of 90 percent. In Tennessee, September 2017 cash forward contracts averaged $3.70 with a range of $3.60 to $3.90. December 2017 corn futures closed at $3.91 down 1 cent since last Friday. Downside price protection could be obtained by purchasing a $4.00 December 2017 Put Option costing 32 cents establishing a $3.68 futures floor.
Soybeans
July 2017 soybean futures closed at $9.21 down 5 cents since last Friday. For the week, July 2017 soybean futures traded between $9.09 and $9.28. Average soybean basis strengthened or remained unchanged at Memphis, Northwest Barge Points, Upper-middle, Northwest, and Lower-middle Tennessee. Basis ranged from 36 under to 15 over the July futures contract at elevators and barge points. Average basis at the end of the week was 6 under the July futures contract. Net sales reported by exporters were within expectations with net sales of 22.4 million bushels for the 2016/17 marketing year and 0.6 million bushels for the 2017/18 marketing year. Exports for the same period were up from last week at 12.7 million bushels. Soybean export sales and commitments were 105 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 99 perent. July soybean-to-corn futures price ratio was 2.48 at the end of the week. Jul/Aug and Jul/Nov future spreads were 2 cent and 4 cents, respectively. August 2017 soybean futures closed at $9.23 down 6 cents since last Friday.
Nationally, the Crop Progress report estimated soybeans planted at 67 percent compared to 53 percent last week, 71 percent last year, and a 5-year average of 68 percent; and soybeans emerged at 37 percent compared to 19 percent last week, 42 percent last year, and a 5-year average of 40 percent. In Tennessee, the Crop Progress report estimated soybeans planted at 53 percent compared to 36 percent last week, 58 percent last year, and a 5-year average of 50 percent; and soybeans emerged at 29 percent compared to 15 percent last week, 35 percent last year, and a 5-year average of 30 percent. In Tennessee, October / November 2017 soybean cash contracts average $9.09 with a range of $8.78 to $9.28. November/December 2017 soybean-to-corn price ratio was 2.37 at the end of the week. November 2017 soybean futures closed at $9.25 down 4 cents since last Friday. Downside price protection could be achieved by purchasing a $9.40 November 2017 Put Option which would cost 51 cents and set an $8.89 futures floor.
Cotton
July 2017 cotton futures closed at 76.69 cents down 0.4 cents since last Friday. For the week, July 2017 cotton futures traded between 76.57 and 77.81 cents. Delta upland cotton spot price quotes for June 1 were 76.13 cents/lb (41-4-34) and 77.38 cents/lb (31-3-35). Adjusted world price (AWP) decreased 0.82 cents to 68.43 cents per pound. Net sales reported by exporters were up from last week with net sales of 110,900 bales for the 2016/17 marketing year and 159,600 bales for the 2017/18 marketing year. Exports for the same period were up from last week at 370,400 bales. Upland cotton export sales were 102 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 102 percent. October 2017 cotton futures closed at 75.24 up 0.06 cents since last Friday. Jul/Oct and Jul/Dec cotton futures spreads were -1.45 cents and -3.57 cents, respectively.
Nationally, the Crop Progress report estimated cotton planted at 63 percent compared to 52 percent last week, 57 percent last year, and a 5-year average of 64 percent; and cotton squaring at 7 percent compared to 5 percent last year and a 5-year average of 4 percent. In Tennessee, cotton planted was estimated at 90 percent compared to 70 percent last week, 86 percent last year, and a 5-year average of 78 percent; and cotton squaring at 2 percent compared to 1 percent last year and a 5-year average of 0 percent. December 2017 cotton futures closed at 73.12 up 0.33 cents since last Friday. Downside price protection could be obtained by purchasing a 74 cent December 2017 Put Option costing 4.19 cents establishing a 69.81 cent futures floor.
Wheat
July 2017 wheat futures closed at $4.29 down 9 cents since last Friday. July 2017 wheat futures traded between $4.27 and $4.42 this week. July wheat-to-corn price ratio was 1.15.Wheat net sales reported by exporters were above expectations with net sales of 1.1 million bushels for the 2016/17 marketing year and net sales of 21.8 million bushels for the 2017/18 marketing year. Exports for the week were the same as last week at 27 million bushels. Wheat export sales were 101 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 105 percent. In Memphis, old crop cash wheat ranged from $4.57 to $4.60. Jul/Sep and Jul/Dec future spreads were 14 cents and 36 cents, respectively. In Tennessee, June/July 2017 cash wheat ranged from $4.04 to $4.60.
Nationally, the Crop Progress report estimated winter wheat condition at 50 percent good-to-excellent and 15 percent poor-to-very-poor; winter wheat headed at 80 percent compared to 72 percent last week, 83 percent last year, and a 5-year average of 77 percent; spring wheat planted at 96 percent compared to 90 percent last week, 98 percent last year, and a 5-year average of 91 percent; spring wheat emerged at 79 percent compared to 62 percent last week, 87 percent last year, and a 5-year average of 74 percent; and spring wheat condition at 62 perceny good-to-excellent and 6 percent poor-to-very poor. In Tennessee, winter wheat condition was reported at 65 percent good-to-excellent and 8 percent poor-to-very poor; and winter wheat coloring at 75 percent compared to 36 percent last week and 63 percent last year. September 2017 wheat futures closed at $4.431 down 8 cents from last Friday. July 2018 wheat futures closed at $5.03 down 7 cents since last Friday. Downside price protection could be obtained by purchasing a $5.10 July 2018 Put Option costing 44 cents establishing a $4.66 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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