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Grain, Cotton Futures Trading Up; Corn Acreage Down, Wheat, Cotton Rise
DR. AARON SMITH
KNOXVILLE, TENN.
On Thursday March 29th, USDA released the Prospective Plantings and Grain Stocks reports. The markets reacted swiftly after the reports were released with corn (10-15 cents), soybeans (25-35 cents), wheat (5-10 cents), and cotton (0.5-1.5 cents) futures trading up.
The biggest surprise was planted acreage. Corn planted acreage was projected at 88 million acres, down 2 percent compared to last year; soybean planted acreage was projected at 89 million acres, down 1 percent compared to last year, wheat planted acreage was projected at 47.3 million acres, up 3 percent compared to last year; and cotton planted acreage was projected at 13.5 million acres, up 4 percent compared to last year. Overall, net planted acreage for the four commodities was projected down 1.115 million acres. This almost makes up all of USDA’s projected decrease in principle crop area planted (16 commodities) of 1.158 million acres (317.989 in 2018 compared to 319.147 in 2017). For comparison, the decrease in principle crop acreage planted between 2016 and 2017 was 91,000 acres (319.238 to 319.147). Having projected corn and soybean acres planted simultaneously decrease caught the market off guard as typically acreage decreases for corn are partially offset by increases in soybeans and vice versa. It remains to be seen, but adding some additional acreage back to corn and soybeans seems probable.
In Tennessee, planted acres were projected at: corn – 750,000 acres, unchanged compared to last year; soybeans – 1.6 million, down 90,000 compared to last year; cotton – 350,000, up 5,000 compared to last year; and wheat 400,000, up 30,000 compared to last year. It was a little surprising that cotton acres weren’t projected up more than 5,000, as harvest prices above 78 cents have been readily available in the futures market. However, this may highlight the concern over investing long term in harvest equipment and/or ginning capacity.
The bearish undertone for corn and soybeans in the Grain Stocks report was overpowered by the planted acreage projections, which were decidedly bullish. However, it is important to note that soybean and corn stocks were estimated up 21 percent and 3 percent, respectively, compared to March 1 last year. Indicated soybean use from December – February was down 9 percent year-over-year, which can almost be exclusively attributed to reduced export sales this marketing year. Exports moving forward will be the key for old crop disappearance.
The bottom line for today’s USDA reports, corn and soybean stocks were on the high end of pre-report estimates (bearish), while planted acres were on the low end of pre-report estimates (bullish). At the end-of-the-day, the bulls won out as futures markets closed decidedly up for all four commodities.
Corn
Across Tennessee, average corn basis (cash price-nearby futures price) weakened or remained unchanged at Memphis, Northwest Barge Points, Northwest, and Upper-middle, and Lower-middle Tennessee. Overall, basis for the week ranged from 11 under to 35 over the May futures contract with an average of 4 under at the end of the week. May 2018 corn futures closed at $3.87, up 10 cents since last Friday. For the week, May 2018 corn futures traded between $3.72 and $3.89. Corn net sales reported by exporters from March 16-22 were above expectations with net sales of 53.2 million bushels for the 2017/18 marketing year and 11.3 million bushels for the 2018/19 marketing year. Exports for the same time period were up from last week at 54.2 million bushels. Corn export sales and commitments were 82 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 80 percent. Ethanol production for the week ending March 23 was 1.039 million barrels per day, down 10,000 from the previous week. Ethanol stocks were 22.790 million barrels, down 968,000 barrels. May/Jul and May/Dec future spreads were 9 and 24 cents, respectively.
July 2018 corn futures closed at $3.96, up 11 cents since last Friday. In Tennessee, September 2018 corn cash forward contracts averaged $3.78 with a range of $3.69 to $3.99. December 2018 corn futures closed at $4.11, up 12 cents since last Friday. Down-side price protection could be obtained by purchasing a $4.20 December 2018 Put Option costing 34 cents establishing a $3.86 futures floor.
Soybeans
Average soybean basis weakened or remained unchanged at Northwest Barge Points, Memphis, Northwest, Lower-middle, and Upper-middle Tennessee. Basis ranged from 51 under to 13 under the May futures contract at elevators and barge points. Average basis at the end of the week was 29 under the May futures contract. May 2018 soybean futures closed at $10.44, up 16 cents since last Friday. For the week, May 2018 soybean futures traded between $10.12 and $10.50. Net sales reported by exporters were below expectations with net sales of 11.7 million bushels for the 2017/18 marketing year and 2.6 million bushels for the 2018/19 marketing year. Exports for the same period were up from last week at 28.8 million bushels. Soybean export sales and commitments were 90 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 95 percent. May soybean-to-corn price ratio was 2.70 at the end of the week.
May/July and May/Nov future spreads were 11 and 3 cents, respectively. July 2018 soybean futures closed at $10.55, up 16 cents since last Friday. In Tennessee, Oct/Nov 2018 soybean cash contracts average $10.03 with a range of $9.77 to $10.26. November 2018 soybean futures closed at $10.47, up 21 cents since last Friday. Downside price protection could be achieved by purchasing a $10.60 November 2018 Put Option which would cost 66 cents and set a $9.94 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 March 28 were 79.74 cents/lb (41-4-34) and 81.49 cents/lb (31-3-35). May 2018 cotton futures closed at 81.6 cents, down 0.23 cents since last Friday. For the week, May 2018 cotton futures traded between 80.67 and 82.77 cents. Net sales reported by exporters were down from last week with net sales of 304,300 bales for the 2017/18 marketing year and 62,100 bales for the 2018/19 marketing year. Exports for the same period were up from last week at 438,400 bales. Up-land cotton export sales were 106 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 90 percent. May/Jul and May/Dec cotton futures spreads were 0.2 cents and -3.87 cents, respectively.
Wheat
May 2018 wheat futures closed at $4.51, down 9 cents since last Friday. May 2018 wheat futures traded between $4.41 and $4.63 this week. May wheat-to-corn price ratio was 1.17. Wheat net sales reported by exporters were above expectations with net sales of 13.0 million bushels for the 2017/18 marketing year and 4.5 million bushels for the 2018/19 marketing year. Exports for the week were down from last week at 12.1 million bushels. Wheat export sales were 91 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 99%. May/Jul and May/Sep future spreads were 17 cents and 34 cents, respectively.
In Tennessee, June/July 2018 cash forward contracts ranged from $4.47 to $4.96 for the week. July wheat-to-corn price ratio was 1.18. July 2018 wheat futures closed at $4.68, down 8 cents since last Friday. Downside price protection could be obtained by purchasing a $4.70 July 2018 Put Option costing 21 cents establishing a $4.49 futures floor. September 2018 wheat futures closed at $4.85, down 7 cents since last Friday. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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