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Stronger US Dollar Provides Headwinds For Exports
DR. AARON SMITH
KNOXVILLE, TENN.
This week the U.S. dollar (USD) continued to strengthen. On September 8, the USD index (Dec futures) set a one year low at 90.795, since then the USD index has strengthened 4.4 percent. A strengthening USD provides headwinds for agricultural exports.
December corn futures remain range bound bouncing between $3.42 ½ and $3.58 since mid-September. Corn basis is weaker than 2016 in the north and western parts of Tennessee and slightly stronger in lower-middle Tennessee. Dramatic improvement in corn prices remains unlikely; however, prices should find a bottom (if one is not already in place) and benefit from “typical” post-harvest price appreciation.
November soybean futures closed down for a second consecutive week. Since the October WASDE, futures prices have retreated to pre-report levels. Futures prices do remain in an intermediate term uptrend beginning mid-August. In Tennessee, soybean basis is 14 to 26 cents lower than 2016 depending on the region. Basis is likely to remain weak as Tennessee production is estimated at 83 million bushels, 10 million bushels more than 2016. Harvested acres are estimated up 30,000 (1.66 million) and yield is estimated up 5 bu/acre (50 bu/acre – a record average yield for Tennessee) from last year.
Cotton futures continue to search for direction in the aftermath of hurricanes Harvey and Irma. Since the hurricanes, December cotton futures have traded between 66.84 and 70.22 cents. A major positive for cotton has been export sales commitments cur-rently estimated at 60 percent of the USDA marketing year total compared to the five year average for this week of 45 percent. Continued export sales will help offset increased domestic upland cotton production.
Corn
December 2017 corn futures closed at $3.48 up 4 cents since last Friday. For the week, December 2017 corn futures traded between $3.43 and $3.55. Across Tennessee, average basis (cash price-nearby futures price) strengthened or remained unchanged at Northwest Barge Points, Northwest, Lower-middle, and Upper-middle Tennessee and weakened at Memphis. Overall, basis for the week ranged from 41 under to 15 over the December futures contract with an average of 17 under at the end of the week. Nationally, the Crop Progress report estimated corn mature at 96 percent compared to 90 percent last week, 99 percent last year, and a 5-year average of 97 percent; corn harvested at 38 percent compared to 28 percent last week, 59 percent last year, and a 5-year average of 59 percent; and corn condition at 66 percent good-to-excellent and 11 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 mature at 100 percent compared to 99 percent last week, 100 percent last year, and a 5-year average of 100 percent; and corn harvested at 95 percent compared to 91 percent last week, 98 percent last year, and a 5-year average of 91 percent. Dec/Mar and Dec/Dec future spreads were 14 and 46 cents, respectively.
Corn net sales reported by exporters from October 13-19 were above expectations with net sales of 50.7 million bushels for the 2017/18 marketing year and 3.8 million bushels for the 2018/19 marketing year. Exports for the same time period were up from last week at 23.8 million bushels. Corn export sales and commitments were 35 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 38 percent. Ethanol production for the week ending October 20 was 1.039 million barrels per day up 20,000 from the previous week. Ethanol stocks were 21.034 million barrels, down 446,000 barrels. In Tennessee, January 2018 cash forward contracts averaged $3.61 with a range of $3.41 to $3.77. March down 446,000 barrels. In Tennessee, January 2018 cash forward contracts averaged $3.61 with a range of $3.41 to $3.77. March 2018 corn futures closed at $3.62 up 4 cents since last Friday. December 2018 corn futures closed at $3.94 up 3 cents since last Friday. Downside price protection could be obtained by purchasing a $4.00 December 2018 Put Option costing 29 cents establishing a $3.71 futures floor.
Soybeans
November 2017 soybean futures closed at $9.75 down 3 cents since last Friday. For the week, November 2017 soybean futures traded between $9.69 and $9.83. Average soybean basis weakened or remained unchanged at Memphis, Northwest Barge Points, Northwest, Upper-middle, and Lower-middle Tennessee. Basis ranged from 51 under to 12 under the November futures contract at elevators and barge points. Average basis at the end of the week was 31 under the November futures contract. Nationally, the Crop Progress report estimated soybeans dropping leaves at 97 percent compared to 94 percent last week, 98 percent last year, and a 5-year average of 97 percent; and soybeans harvested at 70 percent compared to 49 percent last week, 74 percent last year, and a 5-year average of 73 percent. In Tennessee, the Crop Progress report estimated soybean condition at 87 percent good-to-excellent and 1 percent poor-to-very poor; soybeans dropping leaves at 97 percent compared to 90 percent last week, 95 percent last year, and a 5-year average of 92 percent; and soybeans harvested at 49 percent compared to 38 percent last week, 73 percent last year, and a 5-year average of 50 percent. November/December 2017 soybean-to-corn price ratio was 2.80 at the end of the week.
Nov/Jan and Nov/Nov future spreads were 11 cents and 22 cents, respectively. In Tennessee, January 2018 soybean cash contracts average $9.75 with a range of $9.46 to $9.96. Net sales reported by exporters were above expectations with net sales of 78.2 mil-lion bushels for the 2017/18 marketing year and 0.04 million bushels for the 2018/19 marketing year. Exports for the same period were up from last week at 92.7 million bushels. Soybean export sales and commitments were 46 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 61 percent. January 2018 soybean futures closed at $9.86 down 3 cents since last Friday. November 2018 soybean futures closed at $9.97 down 1 cent since last Friday. Downside price protection could be achieved by purchasing a $10.00 November 2018 Put Option which would cost 62 cents and set a $9.38 futures floor. November/December 2018 soybean-to-corn price ratio was 2.53 at the end of the week.
Cotton
Delta upland cotton spot price quotes for October 26 were 67.69 cents/lb (41-4-34) and 68.94 cents/lb (31-3-35). Adjusted world price (AWP) increased 1.28 cents to 61.01 cents per pound. Net sales reported by exporters were up from last week with net sales of 289,100 bales for the 2017/18 marketing year and 46,800 bales for the 2018/19 marketing year. Exports for the same period were up from last week at 94,700 bales. Upland cotton export sales were 60 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 45 percent. Dec/Mar and Dec/Dec cotton futures spreads were -0.09 cents and 0.77 cents, respectively.
Nationally, the Crop Progress report estimated cotton bolls opening at 87 percent compared to 82 percent last week, 92 percent last year, and a 5-year average of 91 percent; cotton harvested at 37 percent compared to 31 percent last week, 38 percent last year, and a 5-year average of 35 percent; and cotton condition at 56 percent good-to-excellent and 14 percent poor-to-very poor. In Tennessee, cotton condition was estimated at 89 percent good-to-excellent and 2 percent poor-to-very poor; cotton bolls opening at 100 percent compared to 98 percent last week, 99 percent last year, and a 5-year average of 93 percent; and cotton harvested at 56 percent compared to 39 percent last week, 59 percent last year, and a 5-year average of 39 percent. December 2017 cotton futures closed at 68.2 cents up 1.32 cents since last Friday. For the week, December 2017 cotton futures traded between 66.89 and 70.22 cents. March 2018 cotton futures closed at 68.11 up 1.34 cents since last Friday. December 2018 cotton futures closed at 68.97 up 1.21 cents since last Friday. Downside price protection could be obtained by purchasing a 69 cent December 2018 Put Option costing 4.44 cents establishing a 64.56 cent futures floor.
Wheat
In Memphis, old crop cash wheat ranged from $4.06 to $4.13. Wheat net sales reported by exporters were within expectations with net sales of 13.2 million bushels for the 2017/18 marketing year and 1.1 million bushels for the 2018/19 marketing year. Exports for the week were down from last week at 4.4 million bushels. Wheat export sales were 57 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 62 percent. Dec/Mar and Dec/Jul future spreads were 18 cents and 47 cents, respectively.
December 2017 wheat futures closed at $4.27 up 1 cent since last Friday. December 2017 wheat futures traded between $4.23 and $4.43 this week. December wheat-to-corn price ratio was 1.23. Nationally, the Crop Progress report estimated winter wheat planted at 75 percent compared to 60 percent last week, 78 percent last year, and a 5-year average of 80 percent; and winter wheat emerged at 52 percent compared to 37 percent last week, 58 percent last year, and a 5-year average of 57 percent. In Tennessee, winter wheat planted was estimated at 41 percent compared to 29 percent last week, 55 percent last year, and a 5-year average of 36 percent; and winter wheat emerged at 14 percent compared to 8 percent last week, 18 percent last year, and a 5-year average of 13 percent. March 2018 wheat futures closed at $4.45 up 1 cent from last Friday. In Tennessee, June/July 2018 cash forward contracts ranged from $4.49 to $4.97 for the week. July 2018 wheat futures closed at $4.74 up 2 cents since last Friday. Downside price protection could be obtained by purchasing a $4.80 July 2018 Put Option costing 30 cents establishing a $4.50 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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