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Lower Harvest Prices Predicted For U.S. Corn, Soybeans
DR. AARON SMITH
KNOXVILLE, TENN.
Corn, soybeans, and wheat were up; cotton was down for the week. The size of the U.S. corn and soybean crop, large domestic stocks carried over from 2017, continued trade disruptions, and faster crop maturity than normal will diminish (eliminate) early harvest price premiums and depress harvest basis below typical levels.
Will producers in Tennessee have lower gross revenue this year, compared to 2017?
From August 1 to October 31, 2017, the average cash prices for corn and soybeans across the state were $3.35/bu and $9.43/bu. So far, in August 2018, cash prices have averaged $3.63/bu and $8.59/bu. Cash wheat prices from June 1 to July 31, were $4.83 (2017) and $5.08 (2018). Cash cotton prices, from October 1 to November 30, 2017 averaged 69.39 cents/lb, currently, cotton prices are 81.51 cents/lb. So far, year-over-year average corn, cotton, and wheat prices are up, soybean prices are down.
Tennessee yield estimates for corn, soybeans, cotton, and wheat for 2018 (2017) are: 174 bu/acre (171 bu/acre), 49 bu/acre (50 bu/acre), 1,050 lb/acre (1,033 lb/acre), and 63 bu/acre (70 bu/acre). Projected year-over-year yields in Tennessee are up for corn and cotton, down for soybeans and wheat.
Using the average prices and average yields above, gross revenue for 2018 (2017) for corn, soybeans, cotton, and wheat are estimated to be: $632/acre ($573/acre), $421/acre ($472/acre), $856/acre ($717/acre), and $320/acre ($338/acre). On average, corn and cotton revenue are projected up, soybean and wheat revenue are projected down, for 2018 compared to 2017.
In Tennessee, in 2017 and 2018, 24 percent of total row crop harvested acres were corn, 56 percent soybeans, 11 percent cotton, and 10 percent wheat. Using a weighted average, based on harvested acres Tennessee producers’ average per acre income for the four crops is projected down $1.64/acre at $509.62/acre. Increased year-over-year corn and cotton returns are offset by the reduction in soybean net returns due to the large percent of acres (56 percent) in soybeans relative to other crops. On average row crop producers in Tennessee are projected to have similar total gross revenue per acre in 2018 as 2017; however regional price and yield differences and crop mix will dictate individual circumstances.
Corn
Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis, Northwest Barge Points, Upper-middle, and Northwest Tennessee and weakened at Lower-middle Tennessee. Overall, basis for the week ranged from 20 under to 30 over the September futures contract with an average of 4 under at the end of the week. September 2018 corn futures closed at $3.64, up 7 cents since last Friday. For the week, September 2018 corn futures traded between $3.52 and $3.67. Corn net sales reported by exporters from August 3-9 were within expectations with net sales of 13.3 million bushels for the 2017/18 marketing year and 41.1 million bushels for the 2018/19 marketing year. Exports for the same time period were down 15 percent compared to last week at 48.0 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 104 percent. Ethanol production for the week ending August 10 was 1.072 million barrels per day, down 28,000 from the previous week. Ethanol stocks were 23.017 million barrels, up 94,000 barrels. Sep/Dec and Sep/Mar future spreads were 14 and 26 cents, respectively.
The Crop Progress report estimated corn condition at 70 percent good-to-excellent and 10 percent poor-to-very poor; corn dough at 73 percent compared to 57 percent last week, 58 percent last year, and a 5-year average of 56 percent; and corn dented at 26 percent compared to 12 percent last week, 15 percent last year, and a 5-year average of 13 percent. In Tennessee, corn condition was estimated at 68 percent good-to-excellent and 8 percent poor-to-very poor; corn dough at 94 percent compared to 88 percent last week, 89 percent last year, and a 5-year average of 88 percent; and corn dented at 56 percent compared to 24 percent last week, 49 percent last year, and a 5-year average of 46 percent. In Tennessee, September 2018 corn cash forward contracts averaged $3.52 with a range of $3.37 to $3.85. December 2018 corn futures closed at $3.78, up 7 cents since last Friday. Downside price protection could be obtained by purchasing a $3.80 December 2018 Put Option costing 21 cents establishing a $3.59 futures floor. March 2019 corn futures closed at $3.90, up 7 cents since last Friday.
Soybeans
Average soybean basis weakened or remained unchanged at Northwest Tennessee and strengthened or remained unchanged at Memphis, Northwest Barge Points, Lower-middle, and Upper-middle Tennessee. Basis ranged from 60 under to 12 over the September futures contract at elevators and barge points. Average basis at the end of the week was 23 under the September futures contract. September 2018 soybean futures closed at $8.81, up 31 cents since last Friday. For the week, September 2018 soybean futures traded between $8.39 and $8.88. Net sales reported by exporters were within expectations with net sales of 4.9 million bushels for the 2017/18 marketing year and 21.0 million bushels for the 2018/19 marketing year. Exports for the same period were down 42 percent compared to last week at 21.6 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 104 percent. September soybean-to-corn price ratio was 2.42 at the end of the week.
Sep/Nov and Sep/Jan future spreads were 11 and 24 cents, respectively. The Crop Progress report estimated soybean condition at 66 percent good-to-excellent and 10 percent poor-to-very poor; soybeans blooming at 96 percent compared to 92 percent last week, 93 percent last year, and a 5-year average of 92 percent; and soybeans setting pods at 84 percent compared to 75 percent last week, 77 percent last year, and a 5-year average of 72 percent. In Tennessee, soybean condition was estimated at 69 percent good-to-excellent and 7 percent poor-to-very poor; soybeans blooming at 93 percent compared to 89 percent last week, 92 percent last year, and a 5-year average of 85 percent; and soybeans setting pods at 78 percent compared to 68 percent last week, 77 percent last year, and a 5-year average of 66 percent. In Tennessee, Oct/Nov 2018 soybean cash contracts average $8.36 with a range of $8.09 to $8.72. November 2018 soybean futures closed at $8.92, up 31 cents since last Friday. Downside price protection could be achieved by purchasing a $9.00 November 2018 Put Option which would cost 36 cents and set an $8.64 futures floor. Nov/Dec 2018 soybean-to-corn price ratio was 2.36 at the end of the week. January 2019 soybean futures closed at $9.05, up 32 cents since last Friday.
Cotton
Delta upland cotton spot price quotes for August 16 were 80.63 cents/lb (41-4-34) and 82.38 cents/lb (31-3-35). Adjusted World Price (AWP) decreased 4.22 cents to 75.45 cents. Net sales reported by exporters were down from last week at 77,700 bales for the 2018/19 marketing year and net sales cancellations of 11,700 for the 2019/20 marketing year. Exports for the same time period were 240,300 bales. Upland cotton export sales were 58 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 35 percent.
The Crop Progress report estimated cotton condition at 40 percent good-to-excellent and 34 percent poor-to-very poor; cotton squaring at 96 percent compared to 92 percent last week, 97 percent last year, and a 5-year average of 98 percent; cotton setting bolls at 77 percent compared to 60 percent last week, 77 percent last year, and a 5-year average of 78 percent; and cotton opening bolls at 13 percent compared to 9 percent last week, 10 percent last year, and a 5-year average of 9 percent. In Tennessee, cotton condition was estimated at 74 percent good-to-excellent and 9 percent poor-to-very poor; cotton setting bolls at 93 percent compared to 85 percent last week, 91 percent last year, and a 5-year average of 82 percent; and cotton bolls opening at 8 percent compared to 3 percent last year and a 5-year average of 3 percent. December 2018 cotton futures closed at 81.39, down 3.84 cents since last Friday. For the week, December 2018 cotton futures traded between 80.6 and 85.31 cents. Dec/Mar and Dec/Dec cotton futures spreads were 0.71 cents and -4.01 cents, respectively. Downside price protection could be obtained by purchasing an 82 cent December 2018 Put Option costing 3.71 cents establishing a 78.29 cent futures floor. March 2019 cotton futures closed at 82.1, down 3.61 cents since last Friday. December 2019 cotton futures closed at 77.38, down 2.62 cents since last Friday.
Wheat
In Tennessee, August 2018 cash wheat ranged from $5.42 to $6.03 for the week. Wheat net sales reported by exporters were above expectations with net sales of 29.5 million bushels for the 2018/19 marketing year. Exports for the week were up 34 percent compared to last week at 17.0 million bushels. Wheat export sales were 30 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 46 percent. The Crop Progress report estimated winter wheat harvested at 94 percent compared to 90 percent last week, 97 percent last year, and a 5-year average of 96 percent; spring wheat condition at 75 percent good-to-excellent and 5 percent poor-to-very poor; and spring wheat harvested at 35 percent compared to 13 percent last week, 38 percent last year, and a 5-year average of 27 percent.
September 2018 wheat futures closed at $5.60, up 14 cents since last Friday. September 2018 wheat futures traded between $5.28 and $5.63 this week. September wheat-to-corn price ratio was 1.54. Sep/Dec and Sep/Jul future spreads were 19 cents and 36 cents, respectively. December 2018 wheat futures closed at $5.79, up 10 cents since last Friday. In Tennessee, June/July 2019 wheat cash contracts ranged from $5.83 to $5.99 for the week. July 2019 wheat futures closed at $5.96, up 6 cents since last Friday. Downside price protection could be obtained by purchasing a $6.00 July 2019 Put Option costing 50 cents establishing a $5.50 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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