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Stick To Marketing Plan Despite Corn, Soybean Price Drop
DR. AARON SMITH
KNOXVILLE, TENN.
After setting a contract high of $10.60 ½ on May 28th, November 2018 soybeans have declined $1.30 (or 12.3 percent of its value) in 13 trading days. Likewise, December 2018 corn came crashing down after achieving a one year high of $4.29 ½ on May 24, closing on Friday down 46 ¾ (or 11% of its value) in 15 trading days. Several factors have contributed to the rapid decline (good growing conditions in the U.S., trade uncertainty with China, Canada, Mexico, and the EU, an apparent resolution to Brazil’s trucking strike, and liquidation of investment long positions in commodity futures markets). Short term volatility is likely to remain prevalent as some of these issues are worked out, however it is important for producers to stick to their marketing plan. Hasty decisions can amplify the problem, not fix it. Make sure decisions are well thought out and devoid of an emotional response. The market is likely to provide additional opportunities to price 2018 production so be prepared to take advantage of these opportunities if they are presented.
December 2018 cotton futures have traded sideways from 88.40 to 94.82 cents since May 30. Another advance in prices is possible but for producers the concern should be with a downward reversal. Having up to 75 percent of anticipated production priced is advisable given: 1) the downside risk and 2) the profitable prices currently available.
To highlight the importance of global trade to US corn, cotton, soybean, and wheat, the June 2018 WASDE report projects the U.S. will export the following percent of total 2018/19 production (2017/18 production in parenthesis): Cotton – 79 percent (76 percent); Soybeans – 54 percent (47 percent); Wheat 52 percent (53 percent), and Corn 15 percent (16 percent). This is unprocessed commodities, so it does not include exports of products such as soybean meal or DDGs. For the current marketing year, the USDA foreign agricultural service estimates China will be the importer of 1 percent of US Corn exports; 15 percent of US Cotton exports; 51 percent of US Soybean exports; and 4 percent of US wheat exports. The longer trade uncertainty is at the forefront of the market the greater the likelihood of continued volatility and lower prices.
Additional analysis of the WASDE report can be found at: https://ag.tennessee.edu/arec/Pages/MonthlyCropComments.aspx
Corn
Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis, Northwest Barge Points, Northwest, Lower-middle, and Upper-middle Tennessee. Overall, basis for the week ranged from 16 under to 30 over the July futures contract with an average of 3 over at the end of the week. July 2018 corn futures closed at $3.61, down 16 cents since last Friday. For the week, July 2018 corn futures traded between $3.55 and $3.79. Corn net sales reported by exporters from June 1-7 were within expectations with net sales of 36.9 million bushels for the 2017/18 marketing year and 9.5 million bush-els for the 2018/19 marketing year. Exports for the same time period were down 3 percent compared to last week at 55.3 million bushels. Corn export sales and commitments were 96 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. Ethanol production for the week ending June 8 was 1.053 mil-lion barrels per day, up 12,000 from the previous week. Ethanol stocks were 22.174 million barrels, up 277,000 barrels. Jul/Sept and Jul/Dec future spreads were 9 and 21 cents, respectively.
The Crop Progress report estimated corn condition at 77 percent good-to-excellent and 4 percent poor-to-very poor; and corn emerged at 94 percent compared to 86 percent last week, 93 percent last year, and a 5-year average of 92 percent. In Tennessee, corn condition was estimated at 80 percent good-to-excellent and 3 percent poor-to-very poor; corn planted at 100 percent compared to 98 percent last week, 99 percent last year, and a 5-year average of 99 percent; corn emerged at 97 percent compared to 95 percent last week, 97 percent last year, and a 5-year average of 97 percent; and corn silking at 1 percent compared to 1 percent last year. In Tennessee, September 2018 corn cash forward contracts averaged $3.75 with a range of $3.57 to $4.06. September 2018 corn futures closed at $3.70, down 16 cents since last Friday. December 2018 corn futures closed at $3.82, down 16 cents since last Friday. Downside price protection could be obtained by purchasing a $3.90 December 2018 Put Option costing 29 cents establishing a $3.61 futures floor.
Soybeans
Average soybean basis weakened or remained unchanged at Memphis, Northwest, and Lower-middle Tennessee and strengthened at Northwest Barge Points and Upper-middle Tennessee. Basis ranged from 41 under to 12 over the July futures contract at elevators and barge points. Average basis at the end of the week was 9 under the July futures contract. July 2018 soybean futures closed at $9.05, down 64 cents since last Friday. For the week, July 2018 soybean futures traded between $9.03 and $9.72. Net sales re-ported by exporters were above expectations with net sales of 19.1 million bushels for the 2017/18 marketing year and 10.7 mil-lion bushels for the 2018/19 marketing year. Exports for the same period were up 16 percent compared to last week at 22 million bushels. Soybean export sales and commitments were 100 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 100 percent. July soybean-to-corn price ratio was 2.51 at the end of the week. Jul/Aug and Jul/Nov future spreads were 6 and 25 cents, respectively. August 2018 soybean futures closed at $9.11, down 63 cents since last Friday. The Crop Progress report estimated soybean condition at 74 percent good-to-excellent and 4 percent poor-to-very poor; soybeans planted at 93 percent compared to 87 percent last week, 91 percent last year, and a 5-year average of 85 percent; and soybeans emerged at 83 percent compared to 68 percent last week, 74 percent last year, and a 5-year average of 69 percent. In Tennessee, soybean condition was estimated at 81 percent good-to-excellent and 2 percent poor-to-very poor; soybeans planted at 79 percent compared to 69 percent last week, 72 percent last year, and a 5-year average of 65 percent; and soybeans emerged at 60 percent compared to 48 percent last week, 57 percent last year, and a 5-year average of 48 percent. In Tennessee, Oct/Nov 2018 soybean cash contracts average $9.46 with a range of $9.20 to $9.75. November 2018 soybean futures closed at $9.30, down 59 cents since last Friday. Downside price protection could be achieved by purchasing a $9.40 November 2018 Put Option which would cost 50 cents and set an $8.90 futures floor. Nov/Dec 2018 soybean-to-corn price ratio was 2.43 at the end of the week.
Cotton
Delta upland cotton spot price quotes for June 14 were 92.41 cents/lb (41-4-34) and 94.16 cents/lb (31-3-35). Adjusted World Price (AWP) increased 1.72 cents to 82.99 cents. July 2018 cotton futures closed at 90.72 cents, down 4.22 cents since last Friday. For the week, July 2018 cotton futures traded between 90.5 and 96.5 cents. Net sales reported by exporters were up from last week with net sales of 34,800 bales for the 2017/18 marketing year and 261,500 bales for the 2018/19 marketing year. Exports for the same period were down 20 percent compared to last week at 459,900 bales. Upland cotton export sales were 109 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 102 percent. Jul/Oct and Jul/Dec cotton futures spreads were 0.56 cents and -0.87 cents, respectively.
Oct 2018 cotton futures closed at 91.28, down 2.38 cents since last Friday. The Crop Progress report estimated cotton condition at 42 percent good-to-excellent and 21 percent poor-to-very poor; cotton planted at 90 percent compared to 76 percent last week, 90 percent last year, and a 5-year average of 88 percent; and cotton squaring at 15 percent compared to 9 percent last week, 14 percent last year, and a 5-year average of 10 percent. In Tennessee, cotton condition was estimated at 76 percent good-to-excellent and 5 percent poor-to-very poor; cotton planted at 99 percent compared to 93 percent last week, 98 percent last year, and a 5-year average of 95 percent; and cotton squaring at 16 percent compared to 5 percent last week, 17 percent last year, and a 5-year average of 9 percent. December 2018 cotton futures closed at 89.85, down 2.75 cents since last Friday. Downside price protection could be obtained by purchasing a 90 cent December 2018 Put Option costing 5.7 cents establishing an 84.3 cent futures floor.
Wheat
In Tennessee, June/July 2018 wheat cash contracts ranged from $4.86 to $5.60 for the week. July 2018 wheat futures closed at $4.99, down 21 cents since last Friday. July 2018 wheat futures traded between $4.87 and $5.38 this week. July wheat-to-corn price ratio was 1.38. Wheat net sales reported by exporters were within expectations with net sales of 11.1 million bushels for the 2018/19 marketing year. Exports for the week were up 34 percent compared to last week at 11.4 million bushels. Wheat export sales were 18 percent of the USDA estimated total annual exports for the 2018/19 marketing year (June 1 to May 31), compared to a 5-year average of 26 percent. The Crop Progress report estimated winter wheat condition at 38 percent good-to-excellent and 35 percent poor-to-very poor; winter wheat headed at 91 percent compared to 83 percent last week, 91 percent last year, and a 5-year average of 90 percent; winter wheat harvested at 14 percent compared to 5 percent last week, 16 percent last year, and a 5-year average of 10 percent; spring wheat condition at 70 percent good-to-excellent and 3 percent poor-to-very poor; and spring wheat emerged at 94 percent compared to 81 percent last week, 94 percent last year, and a 5-year average of 89 percent. In Tennessee, winter wheat condition was estimated at 67 percent good-to-excellent and 5 percent poor-to-very poor; winter wheat coloring at 97 percent compared to 92 percent last week, 97 percent last year, and a 5-year average of 91 percent; winter wheat mature at 69 percent compared to 18 percent last week; and winter wheat harvested at 13 percent compared to 1 percent last week and 28 percent last year.
Jul/Sep and Jul/Jul future spreads were 14 cents and 68 cents, respectively. September 2018 wheat futures closed at $5.13, down 23 cents since last Friday. July 2019 wheat futures closed at $5.67, down 23 cents since last Friday. Downside price protection could be obtained by purchasing a $5.70 July 2019 Put Option costing 44 cents establishing a $5.26 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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