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USDA Grain Stocks Report Evaluates Crop Situation
DR. AARON SMITH
KNOXVILLE, TENN.
The USDA released the September 1 Grain Stocks report. The report provides an estimated stocks carryover from the 2016/17 marketing year for corn and soybeans. Overall, the Grain Stocks report was supportive for corn and soybeans and bearish for wheat prices.
Corn stocks as of September 1 were estimated to be 2.295 billion bushels, the highest marketing year carryover since 1988. However, the estimate was lower than the average prereport guess of 2.349 billion bushels. Adjusting for use, corn stocks-to-use (marketing year ending stocks divided by domestic consumption plus exports) was estimated at 15.7 percent, the highest level since 2005/06. At face value the estimates released today were undoubtedly bearish, however the market already had the large stocks-to-use ratio and 2016/17 ending stocks priced into the futures market. Moving forward, focus will now be squarely on yield revisions to the 2017 US crop, South American weather, and the USDA projected 964 million bushel decline in global corn stocks from the 2016/17 to 2017/18 marketing year end.
September 1 soybean stocks were estimated at 301 million bushels, the most since 2007. The estimate was about 40 million bushels less than average pre-report guesses, so soybean futures reacted positively to the report. Soybean stocks-to-use are estimated to be at its highest level since 2006/07. Soybeans remain somewhat of an enigma with very strong year-over-year demand being countered by continued increases in production domestically and in South America. Moving forward Chinese imports and planting/growing conditions in Brazil and Argentina will move markets in either direction. Similar to the past few years, soybeans appear poised for continued volatility.
Wheat stocks as of September 1 were estimated down 292 million bushels from 2016 at 2.253 billion bushels (the marketing year end for wheat is May 31). However, this indicates June through August use of wheat was only 668 million bushels down 10 percent from last year. Wheat use is hampered by an abundance of corn and other grains domestically and a large Russian wheat crop competing for exports.
December cotton futures traded sideways for the week, between 68.18 and 69.73 cents. Losses from hurricane Harvey and Irma, in Texas and Georgia, could be 300,000-800,000 bales however at this time estimates are mostly speculation.
Corn
December 2017 corn futures closed at $3.55 up 2 cents since last Friday. For the week, December 2017 corn futures traded between $3.48 and $3.58. Across Tennessee, average basis (cash price-nearby futures price) weakened or remained unchanged at Memphis, Northwest Barge Points, Lower-Middle, and Upper-middle Tennessee and weakened at Northwest Tennessee. Overall, basis for the week ranged from 61 under to 10 over the December futures contract with an average of 29 under at the end of the week. Nationally, the Crop Progress report estimated corn dented at 93 percent compared to 86 percent last week, 96 percent last year, and a 5-year average of 95 percent; corn mature at 51 percent compared to 34 percent last week, 70 percent last year, and a 5-year average of 64 percent; corn harvested at 11 percent compared to 7 percent last week, 14 percent last year, and a 5-year average of 17 percent; and corn condition at 61 percent good-to-excellent and 13 percent poor-to-very poor. In Tennessee, the Crop Progress report estimated corn condition at 87 percent good-to-excellent and 3 percent poor-to-very poor; corn dented at 99 percent compared to 97 percent last week, 100 percent last year, and a 5-year average of 99 percent; corn mature at 95 percent compared to 88 percent last week, 97 percent last year, and a 5-year average of 91 percent; and corn harvested at 59 percent compared to 46 percent last week, 76 percent last year, and a 5-year average of 61 percent. Downside price protection could be obtained by purchasing a $3.60 December 2017 Put Option costing 11 cents establishing a $3.49 futures floor. Dec/Mar and Dec/Dec future spreads were 12 and 44 cents, respectively.
Corn net sales reported by exporters from September 15-21 were below expectations with net sales of 12.6 million bushels for the 2017/18 marketing year. Exports for the same time period were up from last week at 28.6 million bushels. Corn export sales and commitments were 24 percent of the USDA estimated total annual exports for the 2017/18 marketing year (September 1 to August 31) compared to a 5-year average of 31 percent. Ethanol production for the week ending September 22 was 0.996 million barrels per day down 37,000 from the previous week. Ethanol stocks were 20.74 million barrels, down 398,000 barrels. In Tennessee, January 2018 cash forward contracts averaged $3.64 with a range of $3.50 to $3.77. March 2018 corn futures closed at $3.67 up 1 cent since last Friday. December 2018 corn futures closed at $3.99 up 3 cents since last Friday.
Soybeans
November 2017 soybean futures closed at $9.68 down 16 cents since last Friday. For the week, November 2017 soybean futures traded between $9.55 and $9.85. Average soybean basis weakened or remained unchanged at Memphis, Northwest Barge Points, Upper-middle, and Northwest Tennessee and strengthened at Lower-middle Tennessee. Basis ranged from 51 under to 10 under the November futures contract at elevators and barge points. Average basis at the end of the week was 34 under the November futures contract. Nationally, the Crop Progress report estimated soybeans dropping leaves at 63 percent compared to 41 percent last week, 65 percent last year, and a 5-year average of 63 percent; soybeans harvested at 10 percent compared to 4 percent last week, 9 percent last year, and a 5-year average of 12 percent; and soybean condition at 60 percent good-to-excellent and 12 percent poor-to-very poor. In Tennessee, the Crop Progress report estimated soybean condition at 82 percent good-to-excellent and 5 percent poor-to-very poor; soybeans dropping leaves at 54 percent compared to 37 percent last week, 66 percent last year, and a 5-year average of 53 percent; and soybeans harvested at 6 percent compared to 3 percent last week, 13 percent last year, and a 5-year average of 9 percent. In Tennessee, October/November 2017 soybean cash contracts average $9.35 with a range of $9.06 to $9.56. November/December 2017 soybean-to-corn price ratio was 2.73 at the end of the week. Downside price protection could be achieved by purchasing a $9.70 November 2017 Put Option which would cost 15 cents and set a $9.55 futures floor.
Nov/Jan and Nov/Nov future spreads were 10 cents and 18 cents, respectively. Net sales reported by exporters were above expectations with net sales of 109.6 million bushels for the 2017/18 marketing year and 4.4 million for the 2018/19 marketing year. Exports for the same period were up from last week at 36.2 million bushels. Soybean export sales and commitments were 36 percent of the USDA estimated total annual exports for the 2017/18 marketing year (September 1 to August 31), compared to a 5-year average of 51 percent. January 2018 soybean futures closed at $9.78 down 16 cents since last Friday. November 2018 soybean futures closed at $9.86 down 12 cents since last Friday.
Cotton
Delta upland cotton spot price quotes for September 28 were 68.97 cents/lb (41-4-34) and 70.25 cents/lb (31-3-35). Adjusted world price (AWP) decreased 0.36 cents to 60.55 cents per pound. Net sales reported by exporters were down from last week with net sales of 194,200 bales for the 2017/18 marketing year and 8,500 for the 2018/19 marketing year. Exports for the same period were down from last week at 131,900 bales. Upland cotton export sales were 52 percent of the USDA estimated total annual exports for the 2017/18 marketing year (August 1 to July 31), compared to a 5-year average of 41 percent. October 2017 cotton futures closed at 69.08 down 0.01 cents since last Friday. Oct/Dec and Dec/Mar cotton futures spreads were -0.63 cent and -0.67 cents, respectively.
Nationally, the Crop Progress report estimated cotton bolls opening at 57 percent compared to 44 percent last week, 61 percent last year, and a 5-year average of 61 percent; cotton harvested at 14 percent compared to 11 percent last week, 9 percent last year, and a 5-year average of 9 percent; and cotton condition at 60 percent good-to-excellent and 14 percent poor-to-very poor. In Tennessee, cotton condition was estimated at 85 percent good-to-excellent and 6 percent poor-to-very poor; cotton bolls opening at 65 percent compared to 50 percent last week, 78 percent last year, and a 5-year average of 65 percent; and cotton harvested at 1 percent compared to 7 percent last year and a 5-year average of 5 percent. December 2017 cotton futures closed at 69.45 cents down 0.01 cents since last Friday. For the week, December 2017 cotton futures traded between 68.18 and 69.73 cents. Downside price protection could be obtained by purchasing a 69 cent December 2017 Put Option costing 1.92 cents establishing a 67.08 cent futures floor. March 2018 cotton futures closed at 67.78 up 0.2 cents since last Friday.
Wheat
In Memphis, old crop cash wheat ranged from $4.28 to $4.37. Wheat net sales reported by exporters were within expectations with net sales of 16 million bushels for the 2017/18 marketing year. Exports for the week were down from last week at 15.6 million bushels. Wheat export sales were 51 percent 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 55 percent. Dec/Mar and Dec/Jul future spreads were 18 cents and 42 cents, respectively.
December 2017 wheat futures closed at $4.48 down 1 cent since last Friday. December 2017 wheat futures traded between $4.44 and $4.62 this week. December wheat-to-corn price ratio was 1.26. Nationally, the Crop Progress report estimated winter wheat planted at 24 percent compared to 13 percent last week, 28 percent last year, and a 5-year average of 28 percent. In Tennessee, winter wheat planted was estimated at 1 percent compared to 1 percent last year and a 5-year average of 1 percent. March 2018 wheat futures closed at $4.66 down 3 cents from last Friday. June/July 2018 cash forward contracts ranged from $4.68 to $5.14 for the week. July 2018 wheat futures closed at $4.90 down 4 cents since last Friday. Downside price protection could be obtained by purchasing a $5.00 July 2018 Put Option costing 36 cents establishing a $4.64 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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