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Prices Rally As China Agrees To Buy More Ag Products
DR. AARON SMITH
KNOXVILLE, TENN.
Corn and soybean markets continue to closely follow the trade situation with China and weather across key production regions. This week easing of trade tensions with China caused an immediate 20 cent increase in soybean futures on Monday with additional price increases for the rest of the week. Corn futures also had a similar rally. The trade news this week was very positive for agriculture (China indicated it would by “large amounts” of US agricultural and energy products to help narrow its trade deficit with the US), however negotiations remain very fluid and could result in continued market volatility (up or down) as negotiations continue to evolve.
Drought concerns are at the forefront of wheat and cotton futures markets. Dry conditions in the Southern Plains have helped push wheat and cotton futures to new six month highs. Additionally, dry conditions in the Dakotas and Minnesota could continue to sup-port wheat futures. July wheat futures are up 68 ½ cents since April 23 closing on Friday at $5.43. December cotton has accelerated its upward move gaining over 5 cents since May 16.
The United States Drought Monitor (http://droughtmonitor.unl.edu/) provides weekly estimates of drought severity. Currently, in Kansas, 92 percent of the state is classified as abnormally dry, with 47 percent classified as severe drought or worse. In Oklahoma, 54 percent of the state is classified as abnormally dry, with 41 percent classified as severe drought or worse. In Texas, 63 percent of the state is classified as abnormally dry, with 22 percent classified as a severe drought or worse. In Colorado, 79 percent of the state is classified as abnormally dry, with 51 percent classified as severe drought or worse. These four states comprise 40 percent (19.1 million acres) of the projected planted area for all wheat in the US in 2018 (58 percent of all winter wheat acres). Oklahoma, Kansas, and Texas are also responsible for 8.1 million acres or 60 percent of the acres planted to cotton in the US in 2018.
Corn
Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Northwest, Lower-middle, and Upper-middle Tennessee and weakened at Memphis and 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 $4.06, up 4 cents since last Friday. For the week, July 2018 corn futures traded between $4.01 and $4.12. Corn net sales reported by exporters from May 11-17 were within expectations with net sales of 33.6 million bushels for the 2017/18 marketing year and 10.8 million bushels for the 2018/19 marketing year. Exports for the same time period were down 6 percent compared to last week at 57.8 million bushels. Corn export sales and commitments were 95 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 94 percent. Ethanol production for the week ending May 18 was 1.028 million barrels per day, down 30,000 from the previous week. Ethanol stocks were 22.129 million barrels, up 624,000 barrels. Jul/Sept and Jul/Dec future spreads were 9 and 19 cents, respectively.
The Crop Progress report estimated corn planted at 81 percent compared to 62 percent last week, 82 percent last year, and a 5-year average of 81 percent; and corn emerged at 50 percent compared to 28 percent last week, 51 percent last year, and a 5-year average of 47 percent. In Tennessee, corn planted was estimated at 94 percent compared to 86 percent last week, 94 percent last year, and a 5-year average of 92 percent; and corn emerged at 79 percent compared to 61 percent last week, 82 percent last year, and a 5-year average of 76 percent. In Tennessee, September 2018 corn cash forward contracts averaged $4.08 with a range of $3.94 to $4.37. September 2018 corn futures closed at $4.15, up 4 cents since last Friday. December 2018 corn futures closed at $4.25, up 5 cents since last Friday. Downside price protection could be obtained by purchasing a $4.30 December 2018 Put Option costing 33 cents establishing a $3.97 futures floor.
Soybeans
Average soybean basis strengthened or remained unchanged at Memphis, Northwest Barge Points, Northwest, Upper-middle, and Lower-middle Tennessee. Basis ranged from 41 under to 14 over the July futures contract at elevators and barge points. Average basis at the end of the week was 6 under the July futures contract. July 2018 soybean futures closed at $10.41, up 43 cents since last Friday. For the week, July 2018 soybean futures traded between $10.11 and $10.50. Net sales reported by exporters were below expectations with net sales cancelations of 5.1 million bushels for the 2017/18 marketing year and net sales of 0.3 million bushels for the 2018/19 marketing year. Exports for the same period were up 56 percent compared to last week at 33.2 million bushels. Soybean export sales and commitments were 98 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 99 percent. July soybean-to-corn price ratio was 2.56 at the end of the week.
Jul/Aug and Jul/Nov future spreads were 5 and 12 cents, respectively. August 2018 soybean futures closed at $10.46, up 44 cents since last Friday. The Crop Progress report estimated soybeans planted at 56 percent compared to 35 percent last week, 50 percent last year, and a 5-year average of 44 percent; and soybeans emerged at 26 percent compared to 10 percent last week, 17 percent last year, and a 5-year average of 15 percent. In Tennessee, soybeans planted were estimated at 50 percent compared to 26 percent last week, 34 percent last year, and a 5-year average of 31 percent; and soybeans emerged at 25 percent compared to 4 percent last week, 13 percent last year, and a 5-year average of 13 percent. In Tennessee, Oct/Nov 2018 soy-bean cash contracts average $10.27 with a range of $10.08 to $10.48. November 2018 soybean futures closed at $10.53, up 45 cents since last Friday. Downside price protection could be achieved by purchasing a $10.60 November 2018 Put Option which would cost 57 cents and set a $10.03 futures floor. Nov/Dec 2018 soybean-to-corn price ratio was 2.48 at the end of the week.
Cotton
Delta upland cotton spot price quotes for May 24 were 86.46 cents/lb (41-4-34) and 88.21 cents/lb (31-3-35). Adjusted World Price (AWP) increased 2.24 cents to 76.33 cents. July 2018 cotton futures closed at 89.21 cents, up 2.66 cents since last Friday. For the week, July 2018 cotton futures traded between 86.63 and 89.88 cents. Net sales reported by exporters were down from last week with net sales of 50,700 bales for the 2017/18 marketing year and 152,200 bales for the 2018/19 marketing year. Exports for the same period were down 5 percent compared to last week at 403,000 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 99 percent. Jul/Oct and Jul/Dec cotton futures spreads were -1.69 cents and -2.56 cents, respectively.
Oct 2018 cotton futures closed at 87.52, up 3.7 cents since last Friday. The Crop Progress report estimated cotton planted at 52 percent compared to 36 percent last week, 49 percent last year, and a 5-year average of 45 percent. In Tennessee, cotton planted was estimated at 75 percent compared to 49 percent last week, 65 percent last year, and a 5-year average of 52 percent. December 2018 cotton futures closed at 86.65, up 4.22 cents since last Friday. Downside price protection could be obtained by purchasing an 87 cent December 2018 Put Option costing 5.8 cents establishing an 81.2 cent futures floor.
Wheat
In Tennessee, June/July 2018 wheat cash contracts ranged from $5.06 to $5.53 for the week. July 2018 wheat futures closed at $5.43, up 25 cents since last Friday. July 2018 wheat futures traded between $5.02 and $5.45 this week. July wheat-to-corn price ratio was 1.34. Wheat net sales reported by exporters were within expectations with net sales of 4.1 million bushels for the 2017/18 marketing year and net sales of 12.5 million bushels for the 2018/19 marketing year. Exports for the week were down 12 percent compared to last week at 13.3 million bushels. Wheat export sales were 96 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 105 percent. The Crop Progress report estimated winter wheat condition at 36 percent good-to-excellent and 35 percent poor-to-very poor; winter wheat headed at 61 percent compared to 45 percent last week, 71 percent last year, and a 5-year average of 64 percent; spring wheat planted at 79 percent compared to 58 percent last week, 88 percent last year, and a 5-year average of 80 percent; and spring wheat emerged at 37 percent compared to 14 percent last week, 59 percent last year, and a 5-year average of 52 percent. In Tennessee, winter wheat condition was estimated at 60 percent good-to-excellent and 6 percent poor-to-very poor; winter wheat headed at 96 percent compared to 90 percent last week, 98 percent last year, and a 5-year average of 96 percent; and winter wheat coloring at 28 percent.
Jul/Sep and Jul/Jul future spreads were 16 cents and 60 cents, respectively. September 2018 wheat futures closed at $5.59, up 25 cents since last Friday. July 2019 wheat futures closed at $6.03, up 18 cents since last Friday. Downside price protection could be obtained by purchasing a $6.10 July 2019 Put Option costing 58 cents establishing a $5.52 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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