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Stronger US Dollar May Impact Exports In 2018
DR. AARON SMITH
KNOXVILLE, TENN.
Trade negotiations and weather continued to drive market direction this week. However, bubbling under the surface of commodity markets is the strengthening USD, which could have an impact on US agricultural exports for the remainder of 2018 and beyond. The USD Index has increased from 89.23 on April 17 to 93.38 on May 17, a 4.6 percent increase in value in one month. A strong USD makes agricultural exports less competitive on the global market. The USD index is a weighted measure of several currencies, so it provides a general direction of the strength of the USD relative to a global basket of currencies. Each commodity has currency exchange rates that are more important. For example, the Brazilian Real-to-USD exchange rate is important to soybean exports. As of May 17, 2018, one Brazilian Real would purchase 0.26997 USD, down 8.3 percent in the past month (On April 17, one Brazilian Real would purchase 0.29449 USD). While many factors impact the global demand for soybeans it will be important to watch the strength of the USD relative to the Brazilian Real (and to a lesser extent the Argentina Peso) throughout 2018 and into 2019.
Since October 1, 2017, December 2018 cotton futures have increased from 67.44 to 82.43, a 14.99 cent increase (or a 22 percent appreciation in value)! Increased cotton prices have largely been fueled by strong global demand (projected global consumption for 2018/19 is 125.7 million bales, up 4.7 million bales from 2017/18 and up 10.7 million from 2016/17), shrinking global ending stocks (projected at 83.7 million bales for 2018/19 – down 27 million bales since 2014/15), and drought concerns in Texas.
Wheat futures prices started a new rally this week after declining the past two weeks. While weather conditions will be the dominant influence in markets for the next few months there are still concerning supply and demand fundamentals for wheat. From the 2012/13 to 2018/19 marketing year, global demand for corn, soybean, and cotton has increased 24 percent, 36 percent, and 17 percent – wheat de-mand has increased 9 percent. Strong demand provides support for prices. Increased prices for corn will provide support for wheat, but demand growth does not currently favor the wheat market.
Corn
Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis, North-west, Lower-middle, and Upper-middle Tennessee and weakened at Northwest Barge Points. Overall, basis for the week ranged from 16 under to 30 over the July futures contract with an average of 5 over at the end of the week. July 2018 corn futures closed at $4.02, up 6 cents since last Friday. For the week, July 2018 corn futures traded between $3.94 and $4.04. Corn net sales reported by exporters from May 4-10 were within expectations with net sales of 38.8 million bushels for the 2017/18 marketing year and 5.1 million bushels for the 2018/19 marketing year. Exports for the same time period were down 12 percent compared to last week at 61.6 million bushels. Corn export sales and commitments were 99 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 92 percent. Ethanol production for the week ending May 11 was 1.058 million barrels per day, up 18,000 from the previous week. Ethanol stocks were 21.505 million barrels, down 459,000 barrels. Jul/Sept and Jul/Dec future spreads were 9 and 18 cents, respectively.
The Crop Progress report estimated corn planted at 62 percent compared to 39 percent last week, 68 percent last year, and a 5-year average of 63 percent; and corn emerged at 28 percent compared to 8 percent last week, 29 percent last year, and a 5-year average of 27 percent. In Tennessee, corn planted was estimated at 86 percent compared to 65 percent last week, 87 percent last year, and a 5-year average of 84 percent; and corn emerged at 61 percent compared to 22 percent last week, 72 percent last year, and a 5-year average of 62 percent. In Tennessee, September 2018 corn cash forward contracts averaged $3.99 with a range of $3.84 to $4.30. September 2018 corn futures closed at $4.11, up 6 cents since last Friday. December 2018 corn futures closed at $4.20, up 6 cents since last Friday. Downside price protection could be obtained by purchasing a $4.30 December 2018 Put Option costing 38 cents establishing a $3.92 futures floor.
Soybeans
Average soybean basis strengthened or remained unchanged at Memphis, Northwest Barge Points, Northwest, and Lower-middle Tennessee and weakened at Upper-middle Tennessee. Basis ranged from 46 under to 12 over the July futures contract at elevators and barge points. Average basis at the end of the week was 4 under the July futures contract. July 2018 soybean futures closed at $9.98, down 5 cents since last Friday. For the week, July 2018 soybean futures traded between $9.92 and $10.26. Net sales reported by exporters were within expectations with net sales of 10.3 million bushels for the 2017/18 marketing year and 8.3 million bushels for the 2018/19 marketing year. Exports for the same period were up 39 percent compared to last week at 24.0 million bushels. Soybean export sales and commitments were 89 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 98 percent. July soybean-to-corn price ratio was 2.48 at the end of the week.
Jul/Aug and Jul/Nov future spreads were 4 and 10 cents, respectively. August 2018 soybean futures closed at $10.02, down 5 cents since last Friday. The Crop Progress report estimated soybeans planted at 35 percent compared to 15 percent last week, 29 percent last year, and a 5-year average of 26 percent; and soybeans emerged at 10 percent compared to 7 percent last year and a 5-year average of 6 percent. In Tennessee, soybeans planted were estimated at 26 percent compared to 7 percent last week, 17 percent last year, and a 5-year average of 19 percent; and soybeans emerged at 4 percent compared to 3 percent last year and a 5-year average of 3 percent. In Tennessee, Oct/Nov 2018 soybean cash contracts average $9.97 with a range of $9.72 to $10.25. November 2018 soybean futures closed at $10.08, down 6 cents since last Friday. Downside price protection could be achieved by purchasing a $10.20 November 2018 Put Option which would cost 57 cents and set a $9.63 futures floor. Nov/Dec 2018 soybean-to-corn price ratio was 2.40 at the end of the week.
Cotton
Delta upland cotton spot price quotes for May 17 were 84.03 cents/lb (41-4-34) and 85.78 cents/lb (31-3-35). Adjusted World Price (AWP) decreased 1.49 cents to 74.09 cents. July 2018 cotton futures closed at 86.55 cents, up 1.93 cents since last Friday. For the week, July 2018 cotton futures traded between 83.36 and 87.6 cents. Net sales reported by exporters were down from last week with net sales of 153,300 bales for the 2017/18 marketing year and 229,300 bales for the 2018/19 marketing year. Exports for the same period were down 17 percent compared to last week at 422,700 bales. Upland cotton export sales were 112 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 98 percent. Jul/Oct and Jul/Dec cotton futures spreads were -2.73 cents and -4.12 cents, respectively.
Oct 2018 cotton futures closed at 83.82, up 1.8 cents since last Friday. The Crop Progress report estimated cotton planted at 36 percent compared to 20 percent last week, 31 percent last year, and a 5-year average of 31 percent. In Tennessee, cotton planted was estimated at 49 percent compared to 10 percent last week, 31 percent last year, and a 5-year average of 29 percent. December 2018 cotton futures closed at 82.43, up 2.19 cents since last Friday. Downside price protection could be obtained by purchasing an 83 cent December 2018 Put Option costing 5 cents establishing a 78 cent futures floor.
Wheat
In Tennessee, June/July 2018 wheat cash contracts ranged from $4.75 to $5.15 for the week. July 2018 wheat futures closed at $5.18, up 20 cents since last Friday. July 2018 wheat futures traded between $4.86 and $5.18 this week. July wheat-to-corn price ratio was 1.29. Wheat net sales reported by exporters were within expectations with net sales of 2.3 million bushels for the 2017/18 marketing year and net sales of 4.8 million bushels for the 2018/19 marketing year. Exports for the week were up 27 percent compared to last week at 15.1 million bushels. Wheat export sales were 94 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 104 percent. The Crop Progress report estimated winter wheat condition at 36 percent good-to-excellent and 36 percent poor-to-very poor; winter wheat headed at 45 percent compared to 33 percent last week, 61 percent last year, and a 5-year average of 53 percent; spring wheat planted at 58 percent compared to 30 percent last week, 75 percent last year, and a 5-year average of 67 percent; and spring wheat emerged at 14 percent compared to 4 percent last week, 37 percent last year, and a 5-year average of 36 percent. In Tennessee, winter wheat condition was estimated at 61 percent good-to-excellent and 5 percent poor-to-very poor; and winter wheat headed at 90 percent compared to 67 percent last week, 97 percent last year, and a 5-year average of 86 percent.
Jul/Sep and Jul/Jul future spreads were 16 cents and 67 cents, respectively. September 2018 wheat futures closed at $5.34, up 19 cents since last Friday. July 2019 wheat futures closed at $5.85, up 16 cents since last Friday. Downside price protection could be obtained by purchasing a $5.90 July 2019 Put Option costing 56 cents establishing a $5.34 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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