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Markets Continue To Focus On Weather, Trade
DR. AARON SMITH
KNOXVILLE, TENN.
A volatile week ended with corn, soybeans, cotton, and wheat up substantially on Friday to secure gains week-over-week across the board. December corn was up 8 ½ cents, November soybeans were up 38 ¾ cents, December cotton was up 2.49 cents, and September wheat was up 9 ¾ cents on Friday. Next week will be critical to determine if a bottom has been established for corn, soybeans, wheat, and cotton. Markets will continue to focus on weather and trade.
Friday was the official day tariffs and retaliatory tariffs were imposed by the US and China on a wide range of goods. Of the four commodities above, the two that will be most directly impacted will be soybeans and cotton. About 47 percent of US soybean production and 87 percent of US cotton production are exported annually. The long term economic impacts of the tariffs remains uncertain (in both countries) but having restricted US access to the largest importer of soybeans in the world and the largest user of cotton in the world should by concerning to US soybean and cotton producers. In terms of dollars, soybeans were estimated to be responsible for $12.4 billion in trade with China and cotton was responsible for an estimated $976 million in trade with China in 2017.
China indicated cancellations of US origin soybeans for delivery in this marketing year (September 1-August 31, 2017/18) and next marketing year (September 1-August 31, 2018/19). Chinese buying of soybeans in South America is likely to intensify and put additional pressure on the tenuous logistical circumstances/infrastructure in Brazil. Additionally, China will likely dip into the substantial stocks held within its borders. However, at some point China will need to purchase additional US soybeans impacted by the 25 percent tariffs. As a result, the global supply of soybeans could see some interesting dynamics in the forthcoming months.
Corn
Across Tennessee, average corn basis (cash price-nearby futures price) strengthened at Memphis, Lower-middle, and Upper-middle Tennessee and weakened at Northwest Barge Points and Northwest Tennessee. Overall, basis for the week ranged from 30 under to 30 over the September futures contract with an average of even at the end of the week. September 2018 corn futures closed at $3.60, up 1 cent since last Friday. For the week, September 2018 corn futures traded between $3.46 and $3.62. Corn net sales reported by exporters from June 22-28 were below expectations with net sales of 17.3 million bushels for the 2017/18 marketing year and 9.1 million bushels for the 2018/19 marketing year. Exports for the same time period were up 2 percent compared to last week at 58.3 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 100 percent. Ethanol production for the week ending June 29 was 1.067 million barrels per day, down 5,000 from the previous week. Ethanol stocks were 21.975 million barrels, up 301,000 barrels. Sep/Dec and Sep/Mar future spreads were 13 and 23 cents, respectively.
The Crop Progress report estimated corn condition at 76 percent good-to-excellent and 6 percent poor-to-very poor; and corn silking at 17 percent compared to 5 percent last week, 9 percent last year, and a 5-year average of 8 percent. In Tennessee, corn condition was estimated at 80 percent good-to-excellent and 3 percent poor-to-very poor; corn silking at 60 percent compared 33 percent last week, 58 percent last year, and a 5-year average of 43 percent; and corn doughing at 3 percent compared to 4 percent last year and a 5-year average of 1 percent. In Tennessee, September 2018 corn cash forward con-tracts averaged $3.50 with a range of $3.32 to $3.80. December 2018 corn futures closed at $3.73, up 2 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. March 2019 corn futures closed at $3.83, up 2 cents since last Friday.
Soybeans
Average soybean basis strengthened at Memphis, Upper-middle, and Lower-middle Tennessee, and weakened at Northwest Barge Points and Northwest Tennessee. Basis ranged from 47 under to 15 over the August futures contract at elevators and barge points. Average basis at the end of the week was 6 under the August futures contract. August 2018 soybean futures closed at $8.77, up 14 cents since last Friday. For the week, August 2018 soybean futures traded between $8.37 and $8.80. Net sales reported by exporters were above expectations with net sales of 20.6 million bushels for the 2017/18 marketing year and 16.9 million bushels for the 2018/19 marketing year. Exports for the same period were up 87 percent compared to last week at 34.4 million bushels. Soybean export sales and commitments were 102 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 102 percent. September soybean-to-corn price ratio was 2.45 at the end of the week.
Aug/Sep and Aug/Nov future spreads were 6 and 17 cents, respectively. September 2018 soybean futures closed at $8.83, up 14 cents since last Friday. The Crop Progress report estimated soybean condition at 71 percent good-to-excellent and 6 percent poor-to-very poor; and soybeans blooming at 27 percent compared to 12 percent last week, 17 percent last year, and a 5-year average of 13 percent. In Tennessee, soybean condition was estimated at 78 percent good-to-excellent and 3 percent poor-to-very poor; soybeans planted at 96 percent compared to 93 percent last week, 94 percent last year, and a 5-year average of 90 percent; soybeans emerged at 89 percent compared to 81 percent last week, 86 percent last year, and a 5-year average of 79 percent; and soybeans blooming at 24 percent compared to 13 percent last week, 18 percent last year, and a 5-year average of 10 percent. In Tennessee, Oct/Nov 2018 soybean cash contracts average $8.58 with a range of $8.38 to $8.95. November 2018 soybean futures closed at $8.94, up 14 cents since last Friday. Downside price protection could be achieved by purchasing a $9.00 November 2018 Put Option which would cost 49 cents and set an $8.51 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 July 6 were 85.15 cents/lb (41-4-34) and 85.90 cents/lb (31-3-35). Adjusted World Price (AWP) decreased 1.07 cents to 74.59 cents. Net sales reported by exporters were up from last week with net sales of 18,000 bales for the 2017/18 marketing year and 268,200 bales for the 2018/19 marketing year. Exports for the same period were up 12 percent compared to last week at 411,600 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 105 percent.
The Crop Progress report estimated cotton condition at 43 percent good-to-excellent and 24 percent poor-to-very poor; cotton squaring at 42 percent compared to 32 percent last week, 43 percent last year, and a 5-year average of 40 percent; and cotton setting bolls at 12 percent compared to 6 percent last week, 12 percent last year, and a 5-year average of 9 percent. In Tennessee, cotton condition was estimated at 80 percent good-to-excellent and 6 percent poor-to-very poor; cotton squaring at 72 percent compared to 54 percent last week, 51 percent last year, and a 5-year average of 45 percent; and cotton setting bolls at 8 percent compared to 1 percent last week, 8 percent last year, and a 5-year average of 4 percent. December 2018 cotton futures closed at 84.45, up 0.53 cents since last Friday. For the week, December 2018 cotton futures traded between 81.75 and 85.09 cents. Dec/Mar and Dec/Dec cotton futures spreads were -0.17 cents and -5.47 cents, respectively. Downside price protection could be obtained by purchasing an 85 cent December 2018 Put Option costing 4.92 cents establishing an 80.08 cent futures floor. March 2019 cotton futures closed at 84.28, up 0.62 cents since last Friday. December 2019 cotton futures closed at 78.98, up 1.74 cents since last Friday.
Wheat
In Tennessee, July 2018 wheat cash contracts ranged from $4.64 to $5.35 for the week. Wheat net sales reported by exporters were within expectations with net sales of 16.2 million bushels for the 2018/19 marketing year. Exports for the week were up 8 percent compared to last week at 14.2 million bushels. Wheat export sales were 23 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 33 percent. The Crop Progress report estimated winter wheat condition at 37 percent good-to-excellent and 34 percent poor-to-very poor; winter wheat harvested at 51 percent compared to 41 percent last week, 51 percent last year, and a 5-year average of 49 percent; spring wheat condition at 77 percent good-to-excellent and 5 percent poor-to-very poor; and spring wheat headed at 58 percent compared to 34 percent last week, 56 percent last year and a 5-year average of 48 percent. In Tennessee, winter wheat condition was estimated at 60 percent good-to-excellent and 4 percent poor-to-very poor; and winter wheat harvested at 94 percent compared to 86 percent last week, 95 percent last year, and a 5-year average of 84 percent.
September 2018 wheat futures closed at $5.15, up 14 cents since last Friday. September 2018 wheat futures traded between $4.79 and $5.16 this week. September wheat-to-corn price ratio was 1.43. Sep/Dec and Sep/Jul future spreads were 15 cents and 42 cents, respectively. December 2018 wheat futures closed at $5.30, up 14 cents since last Friday. July 2019 wheat futures closed at $5.57, up 9 cents since last Friday. Downside price protection could be obtained by purchasing a $5.60 July 2019 Put Option costing 45 cents establishing a $5.15 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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