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Corn Within Range; Soybeans, Cotton Dive
AARON SMITH
KNOXVILLE, TENN.
Nearby corn futures remain range bound, trading between $3.45 and $3.70; however, March futures prices have closed up for three consecutive weeks. Rallies, even small ones, should be viewed as opportunities for old crop sales. Look for basis opportunities to assist in obtaining higher cash corn prices. New crop corn is currently trading just under $4.00. Similar to old crop, prices have climbed for three straight weeks. Given large domestic supplies pricing some 2018 production when harvest futures are near $4.00 should be strongly considered.
This week’s soybean export sales numbers were underwhelming precipitating a decrease in futures prices. Increased export sales over the next two months will be critical if export sales are to achieve the USDA marketing year total. Reductions in export sales would increase domestic ending stocks and likely result in further price declines. There are only a few months before new crop South American production is competing with our 2017 production for exports. New crop soybeans remain near $10.00, which represents an excellent opportunity to start 2018 pricing. A great deal of uncertainty in export markets and trade negotiations exist in 2018, this has the ability to cause dramatic changes in soybean markets. As such, pricing 25-50 percent of estimated 2018 production is a prudent risk management decision.
Nearby cotton futures dropped for a second consecutive week. It remains to be seen if this is price consolidation with another run into the mid 80 cent range or if a new trading range between 72 and 79 cents is being established. Given export sales pace (well above USDA’s pace to achieve marketing year totals) and outstanding on call sales continued volatility in nearby cotton futures is likely. New crop sales near 75 cents (December contract) should be considered.
Wheat has shown some life due to dry weather in the southern plains, however given global stocks and flat demand a rally above $5.00 remains unlikely.
Corn
Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Northwest Barge Points, Memphis, Northwest, Upper-middle, and Lower-middle Tennessee. Overall, basis for the week ranged from 16 under to 22 over the March futures contract with an average of 7 over at the end of the week. March 2018 corn futures closed at $3.61, up 5 cents since last Friday. For the week, March 2018 corn futures traded between $3.56 and $3.62. Corn net sales reported by exporters from January 19-25 were above expectations with net sales of 72.9 million bushels for the 2017/18 marketing year and 1.2 mil-lion bushels for the 2018/19 marketing year. Exports for the same time period were up from last week at 41.2 million bushels. Corn export sales and commitments were 66 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 66 percent. Ethanol production for the week ending January 26 was 1.040 million barrels per day, down 22,000 from the previous week. Ethanol stocks were 23.045 million barrels, down 755,000 barrels. Mar/May and Mar/Dec future spreads were 8 and 31 cents, respectively.
May 2018 corn futures closed at $3.69, up 4 cents since last Friday. In Tennessee, September 2018 corn cash forward contracts averaged $3.71 with a range of $3.58 to $3.95. December 2018 corn futures closed at $3.92, 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
Average soybean basis strengthened at Northwest Barge Points and Northwest Tennessee and weakened at Memphis, Upper-middle, and Lower-middle Tennessee. Basis ranged from 33 under to 6 over the March futures contract at elevators and barge points. Average basis at the end of the week was 11 under the March futures contract. March 2018 soybean futures closed at $9.78, down 7 cents since last Friday. For the week, March 2018 soybean futures traded between $9.77 and $10.04. Net sales re-ported by exporters were below expectations with net sales of 13.2 million bushels for the 2017/18 marketing year and 1.9 million bushels for the 2018/19 marketing year. Exports for the same period were down from last week at 44.8 million bushels. Soybean export sales and commitments were 74 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 88 percent. March soybean-to-corn price ratio was 2.71 at the end of the week.
Mar/May and Mar/Nov future spreads were 12 and 21 cents, respectively. May 2018 soybean futures closed at $9.90, down 7 cents since last Friday. In Tennessee, Oct/Nov 2018 soybean cash contracts average $9.89 with a range of $9.65 to $10.12. November 2018 soybean futures closed at $9.99, down 3 cents since last Friday. Downside price protection could be achieved by purchas-ing a $10.00 November 2018 Put Option which would cost 53 cents and set a $9.47 futures floor. November/December 2018 soybean-to-corn price ratio was 2.55 at the end of the week.
Cotton
Delta upland cotton spot price quotes for February 1 were 77.35 cents/lb (41-4-34) and 79.10 cents/lb (31-3-35). Adjusted world price (AWP) decreased 3.95 cents to 71.35 cents per pound. March 2018 cotton futures closed at 77.3 cents, down 3.18 cents since last Friday. For the week, March 2018 cotton futures traded between 76.52 and 80.62 cents. Net sales reported by exporters were up from last week with net sales of 303,300 bales for the 2017/18 marketing year and 30,700 bales for the 2018/19 marketing year. Exports for the same period were up from last week at 305,100 bales. Upland cotton export sales were 85 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 78 percent. Mar/May and Mar/Dec cotton futures spreads were 1.31 cents and -2.22 cents, respectively.
May 2018 cotton futures closed at 78.61, down 2.61 cents since last Friday. December 2018 cotton futures closed at 75.08, down 0.43 cents since last Friday. Downside price protection could be obtained by purchasing a 76 cent December 2018 Put Option costing 4.81 cents establishing a 71.19 cent futures floor.
Wheat
In Memphis, old crop cash wheat ranged from $4.24 to $4.62. March 2018 wheat futures closed at $4.46, up 5 cents since last Friday. March 2018 wheat futures traded between $4.43 and $4.58 this week. March wheat-to-corn price ratio was 1.24. Wheat net sales reported by exporters were below expectations with net sales of 10.6 million bushels for the 2017/18 marketing year. Exports for the week were up from last week at 18.9 million bushels. Wheat export sales were 77 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 85 percent. Mar/May and Mar/Jul future spreads were 13 cents and 27 cents, respectively.
May 2018 wheat futures closed at $4.59, up 6 cents since last Friday. In Tennessee, June/July 2018 cash forward contracts ranged from $4.54 to $5.08 for the week. July 2018 wheat futures closed at $4.73, up 7 cents since last Friday. Downside price protection could be obtained by purchasing a $4.80 July 2018 Put Option costing 28 cents establishing a $4.52 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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