|
December 2017 Corn Futures Closed At $3.50 Down 5 Cents Since Week Ago
DR. AARON SMITH
KNOXVILLE, TENN.
Stocks-to-use ratio is a commonly used measure to predict marketing year average price for corn and soybeans. Simply stated stocks-to-use is a measure of the amount of a commodity held in reserve (marketing year ending stocks) compared to use for a specified time (annual consumption or annual consumption plus annual exports).
U.S. stocks-to-use ratios (marketing year ending stocks divided by domestic consumption plus exports) for corn and soybeans are currently projected by the USDA to be 16.4 percent and 11.0 percent, respectively. Using a simple linear relationship from 2006 to 2016 the marketing year average price for 2017 would be projected to be $2.58/bu and $8.93/bu for corn and soybeans, respectively.
World stocks-to-use ratios (marketing year ending stocks divided by consumption) for corn and soybeans are currently projected by the USDA to be 19.2 percent and 28.3 percent, respectively. Using the same simple linear relationship from 2006 to 2016 the marketing average price would be projected to be $4.04/bu for corn and $8.99/bu for soybeans. Thus, for corn one or both of the predictions will be incorrect, however this does provide a range of price outcomes that can guide decisions.
For corn, the U.S. price prediction ($2.58/bu) is driven by the 2.335 billion bushel ending stocks estimate (down 15 million from last year). Whereas the world projected price prediction ($4.04/bu) reflects a projected 964 million bushel decline in global stocks (8.935 to 7.971 billion bushels).
For soybeans, the estimated U.S. ($8.93/bu) and world ($8.99/bu) prices are similar. However, due to only two primary production regions (U.S. and Brazil/Argentina) and one primary importer (China) it is very easy to argue that soybean production or use (and consequently price) have the potential for greater volatility than corn. Additionally, it is important to note that supply and demand numbers are estimates and are likely to be modified as more information is revealed.
Stocks-to-use ratios are a useful tool in projecting prices or projecting a price response to a change in supply or demand, however it is important to note projections are imperfect and rely on the accuracy of the underlying data.
Lastly, a small change in stocks-to-use estimates can dramatically change predicted prices. For example, if U.S. stocks-to-use for soybeans decreased 2 percent from 11 percent to 9 percent the projected marketing year price would increase from $8.93/bu to $9.64/bu (up $0.71/bu).
Corn
December 2017 corn futures closed at $3.50 down 5 cents since last Friday. For the week, December 2017 corn futures traded between $3.46 and $3.56. Across Tennessee, average basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis, Northwest Barge Points, Northwest, and Upper-middle Tennessee and weakened at Lower-middle Tennessee. Overall, basis for the week ranged from 76 under to 15 over the December futures contract with an average of 30 under at the end of the week. Nationally, the Crop Progress report estimated corn dented at 96 percent compared to 93 percent last week, 100 percent last year, and a 5-year average of 98 percent; corn mature at 68 percent compared to 51 percent last week, 84 percent last year, and a 5-year average of 78 percent; corn harvested at 17 percent compared to 11 percent last week, 23 percent last year, and a 5-year average of 26 percent; and corn condition at 63 percent good-to-excellent and 12 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 100 percent compared to 99 percent last week, 100 percent last year, and a 5-year average of 100 percent; corn mature at 96 percent compared to 95 percent last week, 99 percent last year, and a 5-year average of 96 percent; and corn harvested at 74 percent compared to 59 percent last week, 88 percent last year, and a 5-year average of 73 percent. Dec/Mar and Dec/Dec future spreads were 13 and 46 cents, respectively.
Corn net sales reported by exporters from September 22-28 were above expectations with net sales of 32.0 million bushels for the 2017/18 marketing year. Exports for the same time period were up from last week at 38.0 million bushels. Corn export sales and commitments were 26 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 33 percent. Ethanol production for the week ending September 29 was 1.010 million barrels per day up 14,000 from the previous week. Ethanol stocks were 21.545 million barrels, up 805,000 barrels. In Tennessee, January 2018 cash forward contracts averaged $3.60 with a range of $3.46 to $3.74. March 2018 corn futures closed at $3.63 up 4 cents since last Friday. December 2018 corn futures closed at $3.96 down 3 cents since last Friday. Downside price protection could be obtained by purchasing a $4.00 December 2018 Put Option costing 31 cents establishing a $3.69 futures floor.
Soybeans
November 2017 soybean futures closed at $9.72 up 4 cents since last Friday. For the week, November 2017 soybean futures traded between $9.52 and $9.73. Average soybean basis strengthened at Memphis, Northwest Barge Points, Upper-middle, Northwest, and Lower-middle Tennessee. Basis ranged from 75 under to 15 under the November futures contract at elevators and barge points. Average basis at the end of the week was 40 under the November futures contract. Nationally, the Crop Progress report estimated soybeans dropping leaves at 80 percent compared to 63 percent last week, 81 percent last year, and a 5-year average of 78 percent; soybeans harvested at 22 percent compared to 10 percent last week, 24 percent last year, and a 5-year average of 26 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 78 percent good-to-excellent and 7 percent poor-to-very poor; soybeans dropping leaves at 70 percent compared to 54 percent last week, 81 percent last year, and a 5-year average of 66 percent; and soybeans harvested at 14 percent compared to 6 percent last week, 27 percent last year, and a 5-year average of 18 percent. November/December 2017 soybean-to-corn price ratio was 2.78 at the end of the week.
Nov/Jan and Nov/Nov future spreads were 11 cents and 19 cents, respectively. In Tennessee, January 2018 soybean cash contracts average $9.62 with a range of $9.31 to $9.85. Net sales reported by exporters were within expectations with net sales of 37.3 million bushels for the 2017/18 marketing year. Exports for the same period were up from last week at 36.2 million bushels. Soybean export sales and commitments were 38 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 54 percent. January 2018 soybean futures closed at $9.83 up 5 cents since last Friday. November 2018 soybean futures closed at $9.91 up 5 cents since last Friday. Downside price protection could be achieved by purchasing a $10.00 November 2018 Put Option which would cost 70 cents and set a $9.30 futures floor. November/December 2018 soybean-to-corn price ratio was 2.50 at the end of the week.
Cotton
Delta upland cotton spot price quotes for October 5 were 68.27 cents/lb (41-4-34) and 69.52 cents/lb (31-3-35). Adjusted world price (AWP) decreased 0.51 cents to 60.04 cents per pound. Net sales reported by exporters were down from last week with net sales of 161,000 bales for the 2017/18 marketing year. Exports for the same period were down from last week at 114,900 bales. Upland cotton export sales were 53 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 43 percent. Dec/Mar and Dec/Dec cotton futures spreads were -0.55 cent and -0.38 cents, respectively.
Nationally, the Crop Progress report estimated cotton bolls opening at 67 percent compared to 57 percent last week, 70 percent last year, and a 5-year average of 70 percent; cotton harvested at 17 percent compared to 14 percent last week, 15 percent last year, and a 5-year average of 13 percent; and cotton condition at 57 percent good-to-excellent and 16 percent poor-to-very poor. In Tennessee, cotton condition was estimated at 81 percent good-to-excellent and 9 percent poor-to-very poor; cotton bolls opening at 77 percent compared to 65 percent last week, 88 percent last year, and a 5-year average of 75 percent; and cotton harvested at 4 percent compared to 1 percent last week, 14 percent last year, and a 5-year average of 9 percent. December 2017 cotton futures closed at 68.84 cents up 0.39 cents since last Friday. For the week, December 2017 cotton futures traded between 67.4 and 69.97 cents. March 2018 cotton futures closed at 68.29 up 0.51 cents since last Friday. December 2018 cotton futures closed at 68.46 up 0.51 cents since last Friday. Downside price protection could be obtained by purchasing a 69 cent December 2018 Put Option costing 5.2 cents establishing a 63.8 cent futures floor.
Wheat
In Memphis, old crop cash wheat ranged from $4.15 to $4.23. Wheat net sales reported by exporters were within expectations with net sales of 18.1 million bushels for the 2017/18 marketing year. Exports for the week were up from last week at 26.3 million bushels. Wheat export sales were 53 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 57 percent. Dec/Mar and Dec/Jul future spreads were 19 cents and 47 cents, respectively.
December 2017 wheat futures closed at $4.43 down 5 cents since last Friday. December 2017 wheat futures traded between $4.38 and $4.50 this week. December wheat-to-corn price ratio was 1.27. Nationally, the Crop Progress report estimated winter wheat planted at 36 percent compared to 24 percent last week, 41 percent last year, and a 5-year average of 43 percent; and winter wheat emerged at 12 percent compared to 18 percent last year and a 5-year average of 16 percent. In Tennessee, winter wheat planted was estimated at 4 percent compared to 1 percent last week, 7 percent last year, and a 5-year average of 6 percent; and winter wheat emerged at 1 percent. March 2018 wheat futures closed at $4.62 down 4 cents from last Friday. June/July 2018 cash forward contracts ranged from $4.56 to $5.00 for the week. July 2018 wheat futures closed at $4.90 the same as last Friday. Downside price protection could be obtained by purchasing a $5.00 July 2018 Put Option costing 37 cents establishing a $4.63 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
|
|