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Corn Continued It’s Upward Trend & Soybean Prices Increased Dramatically
DR. AARON SMITH
KNOXVILLE, TENN.
This week corn continued its upward trend. Since December 15, 2017, December 2018 corn futures have increased from $3.79 ¼ to $3.97, up 17 ¾ cents. The rally has been fueled by recent strong export sales and weather concerns in Argentina. The increase in harvest futures prices is a welcome development as we are in the spring crop insurance price determination period – higher crop insurance prices will increase the revenue guarantees for producers.
Soybean prices increased dramatically this week, primarily due to concerns about dry weather decreasing production in Argentina. Nearby futures were up nearly 40 cents and harvest futures were up over 22 cents for the week. The recent rally should be viewed as a pricing opportunity for some of 2018’s production. Prices could continue to strengthen if the Argentinian drought continues to intensify, however export sales pace and trade negotiations with China provide a great deal of uncertainty in soybean markets. As such, pricing 25-50 percent of 2018 production with prices above $10.00 is a prudent risk management strategy.
Nearby cotton prices continue to move lower, while harvest futures have been able to hold the 75-76 cent price range. Nearby cotton futures are down almost 10 cents from mid-January highs. Export sales continue to exceed the pace needed to meet the USDA’s marketing year goal, however shipments will need to catch up if another run towards 80 cents is to occur. Short term volatility in nearby cotton futures is likely to remain and another run to 80 cents is possible, however supply and demand fundamentals point towards a move lower, eventually.
Both the southern and northern plains are in various stages of drought according to the United States Drought Monitor, which has been supportive to wheat prices. The July contract is up 33 ¼ cents in 2018, closing at $4.86 ½ on Friday. This is positive considering the USDA is projecting U.S. ending stocks above 1 billion bushels and global stocks are estimated at an all-time high.
Corn
Across Tennessee, average corn basis (cash price-nearby futures price) weakened or remained unchanged at Northwest Barge Points, Memphis, Northwest, Upper-middle, and Lower-middle Tennessee. Overall, basis for the week ranged from 11 under to 30 over the March futures contract with an average of 7 over at the end of the week. March 2018 corn futures closed at $3.67, up 5 cents since last Friday. For the week, March 2018 corn futures traded between $3.64 and $3.68. Corn net sales reported by exporters from February 2-8 were above expectations with net sales of 77.7 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 down from last week at 34.0 million bushels. Corn export sales and commitments were 69 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 70 percent. Ethanol production for the week ending February 9 was 1.016 million barrels per day, down 41,000 from the previous week. Ethanol stocks were 22.885 million barrels, down 604,000 barrels. Mar/May and Mar/Dec future spreads were 8 and 30 cents, respectively.
May 2018 corn futures closed at $3.75, up 6 cents since last Friday. In Tennessee, September 2018 corn cash forward contracts averaged $3.77 with a range of $3.68 to $3.99. December 2018 corn futures closed at $3.97, up 5 cents since last Friday. Downside price protection could be obtained by purchasing a $4.00 December 2018 Put Option costing 27 cents establishing a $3.73 futures floor.
Soybeans
Average soybean basis weakened or remained unchanged at Northwest Barge Points, Memphis, Upper-middle, and Lower-middle Tennessee and strengthened at Northwest Tennessee. Basis ranged from 33 under to 10 over the March futures contract at elevators and barge points. Average basis at the end of the week was 9 under the March futures contract. March 2018 soybean futures closed at $10.21, up 38 cents since last Friday. For the week, March 2018 soybean futures traded between $9.89 and $10.28. Net sales reported by exporters were above expectations with net sales of 23.5 million bushels for the 2017/18 marketing year and 7.2 million bushels for the 2018/19 marketing year. Exports for the same period were down from last week at 50.5 million bushels. Soybean export sales and commitments were 78 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 90 percent. March soybean-to-corn price ratio was 2.78 at the end of the week.
Mar/May and Mar/Nov future spreads were 11 and 1 cent, respectively. May 2018 soybean futures closed at $10.32, up 39 cents since last Friday. In Tennessee, Oct/Nov 2018 soybean cash contracts average $10.01 with a range of $9.74 to $10.26. November 2018 soybean futures closed at $10.22, up 22 cents since last Friday. Downside price protection could be achieved by purchasing a $10.40 November 2018 Put Option which would cost 69 cents and set a $9.71 futures floor. November/December 2018 soybean-to-corn price ratio was 2.57 at the end of the week.
Cotton
Delta upland cotton spot price quotes for February 15 were 74.77 cents/lb (41-4-34) and 76.52 cents/lb (31-3-35). Adjusted world price (AWP) decreased 0.3 cents to 69.15 cents per pound. March 2018 cotton futures closed at 75.72 cents, down 0.96 cents since last Friday. For the week, March 2018 cotton futures traded between 75.12 and 77.47 cents. Net sales reported by exporters were down from last week with net sales of 364,800 bales for the 2017/18 marketing year and 131,000 bales for the 2018/19 marketing year. Exports for the same period were down from last week at 324,700 bales. Upland cotton export sales were 93 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 81 percent. Mar/May and Mar/Dec cotton futures spreads were 1.44 cents and -0.1 cents, respectively.
May 2018 cotton futures closed at 77.16, down 0.47 cents since last Friday. December 2018 cotton futures closed at 75.62, up 0.1 cents since last Friday. Downside price protection could be obtained by purchasing a 76 cent December 2018 Put Option costing 4.51 cents establishing a 71.49 cent futures floor.
Wheat
In Memphis, old crop cash wheat ranged from $4.70 to $4.76. March 2018 wheat futures closed at $4.57, up 8 cents since last Friday. March 2018 wheat futures traded between $4.51 and $4.67 this week. March wheat-to-corn price ratio was 1.25. Wheat net sales reported by exporters were above expectations with net sales of 11.4 million bushels for the 2017/18 marketing year and 4.1 million bushels for the 2018/19 marketing year. Exports for the week were up from last week at 18 million bushels. Wheat export sales were 82 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 89%. Mar/May and Mar/Jul future spreads were 14 cents and 29 cents, respectively.
May 2018 wheat futures closed at $4.71, up 10 cents since last Friday. In Tennessee, June/July 2018 cash forward contracts ranged from $4.64 to $5.15 for the week. July 2018 wheat futures closed at $4.86, up 12 cents since last Friday. Downside price protection could be obtained by purchasing a $4.90 July 2018 Put Option costing 29 cents establishing a $4.61 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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