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USMCA Spurs Grain, Oilseed Futures Bounce Back
DR. AARON SMITH
KNOXVILLE, TENN.
A good bounce back week for grain and oilseed futures prices after last week’s bearish USDA stocks report. The rally this week was partially driven by a new trade deal (USMCA formally NAFTA) with Canada and Mexico as well as harvest weather concerns across the Midwest. As harvest progresses it remains unlikely that a significant rally in soybean or corn cash prices occurs – due primarily to the size of this year’s crop – without movement in a trade deal with China, which does not appear to be forthcoming. As such, producers should consider storage or delayed pricing alternatives that can extend the marketing interval.
In September, compared to last year, December corn futures averaged $0.05 higher ($3.58 compared to $3.53); November soybean futures averaged $1.27 lower ($8.39 compared to $9.66); December cotton futures averaged 9.98 cents higher (80.36 compared to 70.38); and July wheat futures averaged $0.43 higher ($4.92 compared to $4.48).
In Tennessee, September 2017 average corn basis was 21 under compared to 25 under in 2018 and average soybean basis in 2017 was 20 under compared to 61 under in 2018. As a result, corn cash prices in September averaged 1 cent higher versus $1.68 lower for soybean cash prices. This is a remarkable change in the relative value of the crops in one year. The principal driver of the dramatic change in relative prices has been the trade disruption with China.
Corn
Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis, North-west Barge Points, Northwest, Upper-middle, and Lower-middle Tennessee. Overall, basis for the week ranged from 31 under to 5 under the December futures contract with an average of 17 under at the end of the week. December 2018 corn futures closed at $3.68, up 12 cents since last Friday. For the week, December 2018 corn futures traded between $3.56 and $3.69. Corn net sales reported by exporters from September 21-27 were within expectations with net sales of 56.3 million bushels for the 2018/19 marketing year. Exports for the same time period were up 4 percent compared to last week at 55.4 million bushels. Corn export sales and commitments were 32 percent of the USDA estimated total annual exports for the 2018/19 marketing year (September 1 to August 31) compared to a 5-year average of 29 percent. Ethanol production for the week ending September 28 was 1.015 million barrels per day, down 21,000 from the previous week. Ethanol stocks were 23.445 million barrels, up 816,000 barrels. Dec/Mar and Dec/Dec future spreads were 12 and 32 cents, respectively.
The Crop Progress report estimated corn condition at 69 percent good-to-excellent and 12 percent poor-to-very poor; corn mature at 86 percent compared to 72 percent last week, 66 percent last year, and a 5-year average of 71 percent; and corn harvested at 26 percent compared to 16 percent last week, 16 percent last year, and a 5-year average of 17 percent. In Tennessee, corn condition was estimated at 73 percent good-to-excellent and 2 percent poor-to-very poor; corn mature at 97 percent compared to 93 percent last week, 96 percent last year, and a 5-year average of 95 percent; and corn harvested at 64 percent compared to 60 percent last week, 72 percent last year, and a 5-year average of 67 percent. In Tennessee, January 2019 corn cash forward contracts averaged $3.75 with a range of $3.62 to $3.91. March 2019 corn futures closed at $3.80, up 12 cents since last Friday. December 2019 corn futures closed at $4.00, up 9 cents since last Friday. Downside price protection could be obtained by purchasing a $4.10 December 2019 Put Option costing 32 cents establishing a $3.78 futures floor.
Soybeans
Average soybean basis strengthened or remained unchanged at Memphis, Northwest Barge Points, Lower-middle, Upper-middle, and Northwest Tennessee. Basis ranged from 80 under to 38 under the November futures contract at elevators and barge points. Average basis at the end of the week was 55 under the November futures contract. November 2018 soybean futures closed at $8.69, up 24 cents since last Friday. For the week, November 2018 soybean futures traded between $8.43 and $8.70. Net sales reported by exporters were above expectations with net sales of 55.9 million bushels for the 2018/19 marketing year and 0.1 million bushels for the 2019/20 marketing year. Exports for the same period were down 12 percent compared to last week at 26.5 million bushels. Soybean export sales and commitments were 41 percent of the USDA estimated total annual exports for the 2018/19 marketing year (September 1 to August 31), compared to a 5-year average of 59 percent. Nov/Dec 2018 soybean-to-corn price ratio was 2.36 at the end of the week.
Nov/Jan and Nov/Nov future spreads were 13 and 66 cents, respectively. The Crop Progress report estimated soybean condition at 68 percent good-to-excellent and 10 percent poor-to-very poor; soybeans dropping leaves at 83 percent compared to 71 percent last week, 78 percent last year, and a 5-year average of 75 percent; and soybeans harvested at 23 percent compared to 14 percent last week, 20 percent last year, and a 5-year average of 20 percent. In Tennessee, soybean condition was estimated at 74 percent good-to-excellent and 5 percent poor-to-very poor; soybeans dropping leaves at 67 percent compared to 60 percent last week, 68 percent last year, and a 5-year average of 64 percent; and soybeans harvested at 18 percent compared to 16 percent last week, 13 percent last year, and a 5-year average of 16 percent. In Tennessee, Jan 2019 soybean cash contracts average $8.44 with a range of $8.39 to $8.51. January 2019 soybean futures closed at $8.82, up 23 cents since last Friday. November 2019 soybean futures closed at $9.35, up 23 cents since last Friday. Downside price protection could be achieved by purchasing a $9.40 November 2019 Put Option which would cost 60 cents and set an $8.80 futures floor. Nov/Dec 2019 soybean-to-corn price ratio was 2.34 at the end of the week.
Cotton
Delta upland cotton spot price quotes for October 4 were 74.75 cents/lb (41-4-34) and 76.5 cents/lb (31-3-35). Adjusted World Price (AWP) decreased 2.07 cents to 67.87 cents. Net sales reported by exporters were down from last week at 21,800 bales for the 2018/19 marketing year and 91,100 for the 2019/20 marketing year. Exports for the same time period were 179,700 bales, up 29 percent from last week. Upland cotton export sales were 62 percent of the USDA estimated total annual exports for the 2018/19 marketing year (August 1 to July 31), compared to a 5-year average of 44 percent.
The Crop Progress report estimated cotton condition at 42 percent good-to-excellent and 25 percent poor-to-very poor; cotton opening bolls at 67 percent compared to 58 percent last week, 66 percent last year, and a 5-year average of 67 percent; and cotton harvested at 19 percent compared to 16 percent last week, 17 percent last year, and a 5-year average of 13 percent. In Tennessee, cotton condition was estimated at 73 percent good-to-excellent and 8 percent poor-to-very poor; cotton bolls opening at 95 percent compared to 93 percent last week, 75 percent last year, and a 5-year average of 70 percent; and cotton harvested at 14 percent compared to 10 percent last week, 4 percent last year, and a 5-year average of 5 percent. December 2018 cotton futures closed at 76.1, down 0.27 cents since last Friday. For the week, December 2018 cotton futures traded between 75.37 and 77.2 cents. Dec/Mar and Dec/Dec cotton futures spreads were 1.04 cents and -0.35 cents, respectively. March 2019 cotton futures closed at 77.14, down 0.15 cents since last Friday. December 2019 cotton futures closed at 75.75, down 0.02 cents since last Friday. Downside price protection could be obtained by purchasing a 76 cent December 2019 Put Option costing 5.1 cents establishing a 70.9 cent futures floor.
Wheat
Wheat net sales reported by exporters were within expectations with net sales of 16 million bushels for the 2018/19 marketing year. Exports for the week were down 34 percent compared to last week at 11.7 million bushels. Wheat export sales were 41 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 59 percent. The Crop Progress report estimated winter wheat planted at 43 percent compared to 28 percent last week, 34 percent last year, and a 5-year average of 40 percent; and winter wheat emerged at 14 percent compared to 10 percent last year and a 5-year average of 14 percent. In Tennessee, winter wheat planted was estimated at 11 percent compared to 9 percent last week, 4 percent last year, and a 5-year average of 5 percent; and winter wheat emerged at 6 percent compared to 1 percent last year.
December 2018 wheat futures closed at $5.21, up 12 cents since last Friday. December 2018 wheat futures traded between $5.05 and $5.27 this week. December wheat-to-corn price ratio was 1.42. Dec/Mar and Dec/Jul future spreads were 19 cents and 34 cents, respectively. March 2019 wheat futures closed at $5.40, up 13 cents since last Friday. In Tennessee, June/July 2019 wheat cash contracts ranged from $5.24 to $5.65 for the week. July 2019 wheat futures closed at $5.55, up 15 cents since last Friday. Downside price protection could be obtained by purchasing a $5.60 July 2019 Put Option costing 41 cents establishing a $5.19 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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