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USDA Compares Global Commodity Production For Analysis
DR. AARON SMITH
KNOXVILLE, TENN.
With U.S. harvest complete, commodity markets will now shift focus to South American crop progress and U.S. exports. Each Thursday, the USDA Foreign Agricultural Service provides a summary of export sales for agricultural products. Data in the report are broken into two general categories of export sales: 1) exports (shipped); and 2) outstanding sales (sales that have not been shipped). Together these categories make total export sales commitments. These two categories are often compared to the USDA total marketing year projected exports – the export estimates contained (and revised) each month in the USDA WASDE report.
For the 2017/18 marketing year (MY), the USDA projects total exports of corn, soybeans, upland cotton, and wheat to be 1.925 billion bushels, 2.225 billion bushels, 13.74 million bales, and 975 million bushels, respectively.
As of the week ending December 7, accumulated exports (shipped from the start of the MY) were: 346 million bushels of corn (18 percent of the MY total); 893 million bushels of soybeans (40 percent of the MY total); 2.603 million bales of cotton (19 percent of the MY total); and 456 million bushels of wheat (47 percent of the MY total).
In addition to exports, each commodity has outstanding sales (sales that have not been shipped). As of December 7, outstanding sales were: 590 million bushels of corn (31 percent of the MY total); 496 million bushels of soybeans (22 percent of the MY total); 7.489 million bales of upland cotton (54 percent of the MY total); and 213 million bushels of wheat (22 percent of the MY total).
Combine the two categories and you get total export sales commitments to date for the MY. Currently estimated at: 936 million bushels of corn (49 percent of the MY total); 1.389 million bushels of soybeans (62 percent of the MY total); 10.09 million bales of cotton (73 percent of the MY total); and 669 million bushels of wheat (69 percent of the MY total).
Outstanding sales are more unsecure than export sales as they can be deferred (resulting in an adverse impact on future sales) or cancelled. As such, while total export sales commitments provide valuable information on the direction exports are potentially going it is important to examine the amount of export sales versus outstanding sales.
Caution needs to be exercised when comparing weekly sales (i.e. taking the MY total and dividing by 52 weeks). Significant seasonal variation in export sales exists for each commodity. In general, export sales are highest during and immediately following harvest – a time when supplies are the most abundant. Also, it is important to note that each commodity has its own specific MY (i.e. corn – MY: September 1 to August 31; wheat – MY: June 1 to May 31).
Corn
In Tennessee, January 2018 corn cash forward contracts averaged $3.53 with a range of $3.46 to $3.58. March 2018 corn futures closed at $3.47 down 5 cents since last Friday. For the week, March 2018 corn futures traded between $3.46 and $3.53. Across Tennessee, average basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis, Northwest Barge Points, Northwest, Lower-middle, and Upper-middle Tennessee. Overall, basis for the week ranged from 26 under to 3 over the March futures contract with an average of 8 under at the end of the week. Corn net sales reported by exporters from December 1-7 were within expectations with net sales of 34.1 million bushels for the 2017/18 marketing year. Exports for the same time period were up from last week at 27.2 million bushels. Corn export sales and commitments were 49 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 53 percent. Ethanol production for the week ending December 8 was 1.089 million barrels per day down 19,000 from the previous week. Ethanol stocks were 22.374 million barrels, down 170,000 barrels. Mar/May and Mar/Dec future spreads were 8 and 33 cents, respectively.
May 2018 corn futures closed at $3.55 down 6 cents since last Friday. December 2018 corn futures closed at $3.80 down 5 cents since last Friday. Downside price protection could be obtained by purchasing a $3.80 December 2018 Put Option costing 24 cents establishing a $3.56 futures floor.
Soybeans
In Tennessee, January 2018 soybean cash contracts average $9.78 with a range of $9.48 to $9.98. January 2018 soybean futures closed at $9.67 down 22 cents since last Friday. For the week, January 2018 soybean futures traded between $9.64 and $9.89. Average soybean basis strengthened or remained unchanged at Memphis, Northwest Barge Points, Lower-middle, and Northwest Tennessee and weakened at Upper-middle Tennessee. Basis ranged from 40 under to even the January futures contract at elevators and barge points. Average basis at the end of the week was 19 under the January futures contract. Net sales reported by exporters were within expectations with net sales of 53.4 million bushels for the 2017/18 marketing year and 4.2 million bushels for the 2018/19 marketing year. Exports for the same period were down from last week at 46.3 million bushels. Soybean export sales and commitments were 62 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 79 percent. January/March soybean-to-corn price ratio was 2.79 at the end of the week.
Jan/Mar and Jan/Nov future spreads were 11 and 20 cents, respectively. March 2018 soybean futures closed at $9.78 down 23 cents since last Friday. November 2018 soybean futures closed at $9.87 down 17 cents since last Friday. Downside price protection could be achieved by purchasing a $10.00 November 2018 Put Option which would cost 61 cents and set a $9.39 futures floor. November/December 2018 soybean-to-corn price ratio was 2.60 at the end of the week.
Cotton
Delta upland cotton spot price quotes for December 14 were 74.58 cents/lb (41-4-34) and 76.33 cents/lb (31-3-35). Adjusted world price (AWP) increased 0.92 cents to 65.95 cents per pound. March 2018 cotton futures closed at 75.92 cents up 2.2 cents since last Friday. For the week, March 2018 cotton futures traded between 72.76 and 76.75 cents. Net sales reported by exporters were up from last week with net sales of 259,700 bales for the 2017/18 marketing year and 36,000 bales for the 2018/19 marketing year.
Exports for the same period were down from last week at 166,600 bales. Upland cotton export sales were 73 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 62 percent. Mar/May and Mar/Dec cotton futures spreads were 0.4 cents and -3.04 cents, respectively.
May 2018 cotton futures closed at 76.32 up 0.4 cents since last Friday. December 2018 cotton futures closed at 72.88 up 0.8 cents since last Friday. Downside price protection could be obtained by purchasing a 73 cent December 2018 Put Option costing 4.52 cents establishing a 68.48 cent futures floor.
Wheat
In Memphis, old crop cash wheat ranged from $3.62 to $4.23. March 2018 wheat futures closed at $4.18 down 1 cent since last Friday. March 2018 wheat futures traded between $4.10 and $4.21 this week. March wheat-to-corn price ratio was 1.20. Wheat net sales reported by exporters were above expectations with net sales of 21.6 million bushels for the 2017/18 marketing year and 0.3 million bushels for the 2018/19 marketing year. Exports for the week were down from last week at 11.1 million bushels. Wheat export sales were 69 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 74 percent. Mar/May and Mar/Jul future spreads were 12 cents and 26 cents, respectively.
May 2018 wheat futures closed at $4.30 down 1 cent from last Friday. In Tennessee, June/July 2018 cash forward contracts ranged from $4.17 to $4.61 for the week. July 2018 wheat futures closed at $4.44 down 1 cent since last Friday. Downside price protection could be obtained by purchasing a $4.50 July 2018 Put Option costing 28 cents establishing a $4.22 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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