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Dry Conditions Affect Commodity Prices
DR. AARON SMITH
KNOXVILLE, TENN.
Dry conditions continue to move south from Montana and the Dakotas into Nebraska and Iowa providing support for grain and oilseed prices. This week the United States Drought Monitor indicated (as of July 4) that 8.9 percent of Iowa was in a moderate drought (D1), up from last week’s estimate of 1.29 percent and 8.69 percent of Nebraska was in a moderate drought, up from 0 percent last week. The Drought Monitor classifies drought intensity from D0-D4 - D0 = abnormally dry; D1 = moderate drought; D2 = severe drought; D3 = extreme drought; and D4 exceptional drought (http://droughtmonitor.unl.edu/). 5-7 day weather forecasts have some precipitation for the region with heavier amounts east of the drought affected area. If timely rain is not received in Iowa and Nebraska (or the eastern part of the Dakotas) prices will continue to strengthen.
Harvest futures for corn (Dec) and soybeans (Nov) closed on Friday at $4.04 ¾ and $10.15 ½, respectively. This represents an excel-lent opportunity for Tennessee producers to secure a price on additional production. Prices could move higher, however as we have seen the past two years futures market rallies can be short in duration, so don’t let profitable opportunities pass idly by. For most producers in Tennessee, corn and soybean futures prices above $4.00 and $10.00 will present profitable pricing opportunities using futures, options, or cash contracts.
December cotton futures prices have traded between 66 and 69 cents since June 22 - after trading between 70 and 76 cents from Jan 4 to June 14. Continued softness in prices is likely due to increased domestic and global acreage and beneficial growing conditions in the Southern plains. Establishing a price floor on production should be strongly considered to mitigate downside price risk.
Corn
September 2017 corn futures closed at $3.92 up 11 cents since last Friday. For the week, September 2017 corn futures traded between $3.82 and $3.97. Across Tennessee, average basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis, Northwest Barge Points, Upper-middle, and Lower-middle Tennessee and weakened at Northwest Tennessee. Overall, basis for the week ranged from 26 under to 31 over the September futures contract with an average of 6 under the September futures contract at the end of the week. Corn net sales reported by exporters from June 23-29 were below expectations with net sales of 5.5 million bushels for the 2016/17 marketing year and 2.9 million bushels for the 2017/18 marketing year. Exports for the same time period were up from last week at 43.7 million bushels. Corn export sales and commitments were 98 percent of the USDA esti-mated total annual exports for the 2016/17 marketing year (September 1 to August 31) compared to a 5-year average of 101 percent. Ethanol production for the week ending June 30 was 1.014 million barrels per day down 1,000 from last week. Ethanol stocks were 21.571 million barrels, down 267,000 barrels. Sep/Dec and Sep/Mar future spreads were 12 and 21 cents, respectively.
Nationally, the Crop Progress report estimated corn silking at 10 percent compared to 4 percent last week, 14 percent last year, and a 5-year average of 13 percent; and corn condition at 68 percent good-to-excellent and 8 percent poor-to-very poor. In Tennessee, the Crop Progress report estimated corn condition at 89 percent good-to-excellent 2 percent poor-to-very poor; and corn silking at 61 percent compared to 38 percent last week, 51 percent last year, and a 5-year average of 52 percent. In Tennessee, September 2017 cash forward contracts averaged $3.80 with a range of $3.45 to $4.02. December 2017 corn futures closed at $4.04 up 12 cents since last Friday. Downside price protection could be obtained by purchas-ing a $4.10 December 2017 Put Option costing 27 cents establishing a $3.83 futures floor. March 2018 corn futures closed at $4.13 up 12 cents since last Friday.
Soybeans
August 2017 soybean futures closed at $10.01 up 54 cents since last Friday. For the week, August 2017 soybean futures traded between $9.17 and $10.03. Average soybean basis strengthened or remained unchanged at Memphis, Lower-middle, Upper-middle, and Northwest Tennessee and weakened at Northwest Barge Points. Basis ranged from 41 under to 15 over the August futures contract at elevators and barge points. Average basis at the end of the week was 10 under the August futures contract. Net sales reported by exporters were within expectations with net sales of 13.4 million bushels for the 2016/17 marketing year and 2.7 million bushels for the 2017/18 marketing year. Exports for the same period were down from last week at 10.2 million bushels. Soybean export sales and commitments were 107 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 102 percent. September soybean-to-corn futures price ratio was 2.57 at the end of the week. Aug/Sep and Aug/Nov future spreads were 5 cents and 14 cents, respectively. September 2017 soybean futures closed at $10.06 up 59 cents since last Friday.
Nationally, the Crop Progress report estimated soybeans emerged at 98 percent compared to 94 percent last week, 98 percent last year, and a 5-year average of 95 percent; soybeans blooming at 18 percent compared to 9 percent last week, 20 percent last year, and a 5-year average of 17 percent; and soybean condition at 64 percent good-to-excellent and 9 percent poor-to-very poor. In Tennessee, the Crop Progress report estimated soybean condition at 83 percent good-to-excellent and 4 percent poor-to-very poor; soybeans planted at 95 percent compared to 89 percent last week, 89 percent last year, and a 5-year average of 92 percent; soybeans emerged at 87 percent compared to 80 percent last week, 90 percent last year, and a 5-year average of 82 percent; and soy-beans blooming at 24% compared to 6 percent last week, 14 percent last year, and a 5-year average of 14 percent. In Tennessee, October / November 2017 soybean cash contracts average $9.83 with a range of $9.41 to $10.05. November/December 2017 soybean-to-corn price ratio was 2.51 at the end of the week. November 2017 soybean futures closed at $10.15 up 61 cents since last Friday. Downside price protection could be achieved by purchasing a $10.20 November 2017 Put Option which would cost 55 cents and set a $9.65 futures floor.
Cotton
Delta upland cotton spot price quotes for July 6 were 67.97 cents/lb (41-4-34) and 69.22 cents/lb (31-3-35). Adjusted world price (AWP) increased 0.54 cents to 65.33 cents per pound. Net sales reported by exporters were down from last week with net sales of 194,200 bales for the 2016/17 marketing year and 297,200 bales for the 2017/18 marketing year. Exports for the same period were up from last week at 302,500 bales. Upland cotton export sales were 108% 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 106 percent. October 2017 cotton futures closed at 69.75 down 0.61 cents since last Friday. Oct/Dec and Dec/Mar cotton futures spreads were -1.16 cents and -0.21 cents, respectively.
Nationally, the Crop Progress report estimated cotton squaring at 45 percent compared to 34 percent last week, 40 percent last year, and a 5-year av-erage of 44 percent; cotton setting bolls at 13 percent compared to 7 percent last week, 10 percent last year, and a 5-year average 10 percent; and cotton condition at 54 percent good-to-excellent and 12 percent poor-to-very poor. In Tennessee, cotton condition was estimated at 89 percent good-to-excellent and 4% poor-to-very poor; cotton squaring at 57 percent compared to 36 percent last week, 49 percent last year, and a 5-year average of 48 percent; and cotton setting bolls at 9 percent compared to 2 percent last week, 5 percent last year, and a 5-year average of 4 percent. December 2017 cotton futures closed at 68.59 cents the same as last Friday. For the week, December 2017 cotton futures traded between 66.55 and 68.92 cents. Downside price protection could be obtained by purchasing a 69 cent December 2017 Put Option costing 3.18 cents establishing a 65.82 cent futures floor. March 2018 cotton futures closed at 68.38 up 0.28 cents since last Friday.
Wheat
In Tennessee, June/July 2017 cash wheat ranged from $5.19 to $5.75. Wheat net sales reported by exporters were within expec-tations with net sales of 13.8 million bushels for the 2017/18 marketing year. Exports for the week were down from last week at 19.9 million bushels. Wheat export sales were 31% of the USDA estimated total annual exports for the 2017/18 marketing year (June 1 to May 31), compared to a 5-year average of 31 percent. Sep/Dec and Sep/Jul future spreads were 22 cents and 51 cents, respec-tively.
September 2017 wheat futures closed at $5.35 up 9 cents since last Friday. September 2017 wheat futures traded between $5.30 and $5.74 this week. September wheat-to-corn price ratio was 1.36. Nationally, the Crop Progress report estimated winter wheat condition at 48 percent good-to-excellent and 17 percent poor-to-very-poor; winter wheat harvested at 53 percent compared to 41 percent last week, 56 percent last year, and a 5-year average of 54 percent; spring wheat headed at 36 percent compared to 15 percent last week, 42 percent last year, and a 5-year aver-age of 35 percent; spring wheat headed at 59 percent compared to 36 percent last week, 71 percent last year, and a 5-year average of 54 percent; and spring wheat condition at 37 percent good-to-excellent and 33 percent poor-to-very poor. In Tennessee, winter wheat harvested was estimated at 96 percent com-pared to 90 percent last week, 93 percent last year, and a 5-year average of 86 percent. December 2017 wheat futures closed at $5.57 up 12 cents from last Friday. July 2018 wheat futures closed at $5.86 up 16 cents since last Friday. Downside price protection could be obtained by purchasing a $5.980 July 2018 Put Option costing 54 cents establishing a $5.36 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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