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Three Events Spur Dip In Commodity Prices
DR. AARON SMITH
KNOXVILLE, TENN.
Early this week commodity prices continued the three week sell off before stabilizing by the end of the week. From June 1, corn, soybean, wheat, and cotton harvest futures are down 35 ½, 118 ½, 33 ¼, and 6 .32 cents. The decrease in prices have been sudden and deep. The reasons for the decline are three fold 1) great growing conditions to date; 2) the escalation of trade tensions with China and other countries; and 3) the liquidation of long positions in corn and soybeans by investment money. All three are intertwined in the price decline as without 1 and 2, 3 wouldn’t have occurred (or would at the least been muted to a large extent.
The question now is where do we go from here? The rapid and deep decline in futures markets on Tuesday (for example, soybeans were down at one point 64 ½ cents before regaining ground and closing down 20 ½ cents) has resulted in substantial chart damage from a technical standpoint. The decline opens the door for a potential rebound (in the November contract to the $9.35 area) followed by a potential retest of the current low ($8.64 ½ for the November contract). It will be key to hold the existing low in the November contract of $8.64 ½ or further weakness may occur. Producers were fortunate to have opportunities this winter and spring to price 2018 soybeans while the November contract was between $10.00 and $10.60, because without a substantial turn in weather or an about face in trade negotiations, the highs for this year’s crop are likely in. A sit and wait approach is likely warranted for those with over half of their estimated production priced or at least they have the ability to be more selective when choosing to secure a price on additional production.
For those that have not secured any prices for 2018 production the road forward is a little more challenging. Three things to consider: 1) do not panic and further complicate a challenging situation, there is still time and opportunities will likely still occur; 2) evaluate storage capacity for this crop, most areas of Tennessee have really good growing conditions, so there is the potential for a large crop, the more that can be stored the longer we can extend the marketing period and the ability for a price rebound; and 3) be prepared to take advantage of rallies (above $9.20 and $3.80 on the harvest futures contracts, for soybean and corn, should at least be considered for those with no pricing year-to-date).
Corn
Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Northwest Barge Points, Northwest, Lower-middle, and Upper-middle Tennessee and weakened at Memphis. 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 $3.57, down 4 cents since last Friday. For the week, July 2018 corn futures traded between $3.38 and $3.62. Corn net sales reported by exporters from June 8-14 were below expectations with net sales of 6.5 million bushels for the 2017/18 marketing year and 13.4 million bushels for the 2018/19 marketing year. Exports for the same time period were down 25 percent compared to last week at 69.4 million bushels. Corn export sales and commitments were 97 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. Ethanol production for the week ending June 15 was 1.064 million barrels per day, up 11,000 from the previous week. Ethanol stocks were 21.647 million barrels, down 527,000 barrels. Jul/Sept and Jul/Dec future spreads were 9 and 21 cents, respectively.
The Crop Progress report estimated corn condition at 78 percent good-to-excellent and 4 percent poor-to-very poor; and corn emerged at 98 percent compared to 94 percent last week, 97 percent last year, and a 5-year average of 97 percent. In Tennessee, corn condition was estimated at 77 percent good-to-excellent and 3 percent poor-to-very poor; corn emerged at 98 percent compared to 97 percent last week, 98 percent last year, and a 5-year average of 99 percent; and a 5-year average of 98 percent; and corn silking at 8 percent compared 1 percent last week, 10 percent last year, and a 5-year average of 3 percent. In Tennessee, September 2018 corn cash forward contracts averaged $3.60 with a range of $3.48 to $3.86. September 2018 corn fu-tures closed at $3.7066, down 4 cents since last Friday. December 2018 corn futures closed at $3.78, down 4 cents since last Friday. Downside price protection could be obtained by purchasing a $3.80 December 2018 Put Option costing 25 cents establishing a $3.55 futures floor.
Soybeans
Average soybean basis strengthened or remained unchanged at Memphis, Northwest Barge Points, Northwest, Lower-middle, 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 8 under the July futures contract. July 2018 soybean futures closed at $8.94, down 11 cents since last Friday. For the week, July 2018 soybean futures traded between $8.41 and $9.14. Net sales reported by exporters were within expectations with net sales of 11.1 million bushels for the 2017/18 marketing year and 8.4 million bushels for the 2018/19 mar-keting year. Exports for the same period were up 66 percent compared to last week at 36.4 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 101 percent. July soybean-to-corn price ratio was 2.50 at the end of the week.
Jul/Aug and Jul/Nov future spreads were 6 and 22 cents, respectively. August 2018 soybean futures closed at $9.00, down 11 cents since last Friday. The Crop Progress report estimated soybean condition at 73 percent good-to-excellent and 5 percent poor-to-very poor; soybeans planted at 97 percent compared to 93 percent last week, 95 percent last year, and a 5-year average of 91 percent; and soybeans emerged at 90 percent compared to 83 percent last week, 87 percent last year, and a 5-year average of 81 percent. In Tennessee, soybean condition was estimated at 76 percent good-to-excellent and 2 percent poor-to-very poor; soybeans planted at 87 percent compared to 79 percent last week, 84 percent last year, and a 5-year average of 76 percent; soybeans emerged at 71 percent compared to 60 percent last week, 68 percent last year, and a 5-year average of 58 percent; and soybeans blooming at 3 percent compared to 2 percent last year and a 5-year average of 0 percent. In Tennessee, Oct/Nov 2018 soybean cash contracts average $8.96 with a range of $8.70 to $9.32. November 2018 soybean futures closed at $9.16, down 14 cents since last Friday. Downside price protection could be achieved by purchasing a $9.20 November 2018 Put Option which would cost 49 cents and set an $8.71 futures floor. Nov/Dec 2018 soybean-to-corn price ratio was 2.42 at the end of the week.
Cotton
Delta upland cotton spot price quotes for June 21 were 83.8 cents/lb (41-4-34) and 85.55 cents/lb (31-3-35). Adjusted World Price (AWP) decreased 4.76 cents to 78.23 cents. July 2018 cotton futures closed at 85.43 cents, down 5.29 cents since last Friday. For the week, July 2018 cotton futures traded between 83.01 and 90.55 cents. Net sales reported by exporters were down from last week with net sales cancelations of 112,400 bales for the 2017/18 marketing year and net sales of 295,400 bales for the 2018/19 marketing year. Exports for the same period were down 32 percent compared to last week at 312,800 bales. Upland cotton export sales were 108 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 103 percent. Jul/Oct and Jul/Dec cotton futures spreads were 0.91 cents and -0.13 cents, respectively.
Oct 2018 cotton futures closed at 86.34, down 4.94 cents since last Friday. The Crop Progress report estimated cotton condition at 38 percent good-to-excellent and 26 percent poor-to-very poor; cotton planted at 96 percent compared to 90 percent last week, 94 percent last year, and a 5-year average of 94 percent; and cotton squaring at 22 percent compared to 15 percent last week, 21 percent last year, and a 5-year average of 17 percent. In Tennessee, cotton condition was estimated at 74 percent good-to-excellent and 6 percent poor-to-very poor; cotton planted at 100 percent compared to 99 percent last week, 99 percent last year, and a 5-year average of 99 percent; and cotton squaring at 33 percent compared to 16 percent last week, 22 percent last year, and a 5-year average of 17 percent. December 2018 cotton futures closed at 85.3, down 4.55 cents since last Friday. Downside price protection could be obtained by purchasing an 86 cent December 2018 Put Option costing 5.68 cents establishing an 80.32 cent futures floor.
Wheat
In Tennessee, June/July 2018 wheat cash contracts ranged from $4.62 to $5.20 for the week. July 2018 wheat futures closed at $4.91, down 8 cents since last Friday. July 2018 wheat futures traded between $4.67 and $4.99 this week. July wheat-to-corn price ratio was 1.38. Wheat net sales reported by exporters were within expectations with net sales of 17 million bushels for the 2018/19 marketing year. Exports for the week were up 38 percent compared to last week at 15.7 million bushels. Wheat export sales were 19 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 28 percent. The Crop Progress report estimated winter wheat condition at 39 percent good-to-excellent and 33 percent poor-to-very poor; winter wheat headed at 95 percent compared to 91 percent last week, 96 percent last year, and a 5-year average of 95 percent; winter wheat harvested at 27 percent compared to 14 percent last week, 66 percent last year, and a 5-year average of 19 percent; spring wheat condition at 78 percent good-to-excellent and 3 percent poor-to-very poor; spring wheat emerged at 97 percent compared to 94 percent last week, 98 percent last year, and a 5-year average of 95 percent; and spring wheat headed at 9 percent compared to 14 percent last year and a 5-year average of 12 percent. In Tennessee, winter wheat condition was estimated at 58 percent good-to-excellent and 6 percent poor-to-very poor; winter wheat mature at 94 percent compared to 69 percent last week and 94 percent last year; and winter wheat harvested at 60 percent compared to 13 percent last week, 69 percent last year, and a 5-year average of 34 percent.
Jul/Sep and Jul/Jul future spreads were 13 cents and 63 cents, respectively. September 2018 wheat futures closed at $5.04, down 9 cents since last Friday. July 2019 wheat futures closed at $5.54, down 13 cents since last Friday. Downside price protection could be obtained by purchasing a $5.60 July 2019 Put Option costing 48 cents establishing a $5.12 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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