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Soybean Prices See-Saw While Sales To Many Markets Increase
DR. AARON SMITH
KNOXVILLE, TENN.
On Monday, soybean futures were up over 20 cents due to harvest weather concerns. On Thursday, abysmal export sales and improved weather forecasts triggered dramatic declines in soybean futures. U.S. soybean exports had remained strong throughout the summer with May through August exports to all countries up 53 percent compared to 2017. Substantial year-over-year increases were noted for Argentina (up 204k MT), Vietnam (up 466k MT), Netherlands (up 807k MT), Indonesia (up 300k MT), Egypt (up 598k MT), Mexico (up 343k MT), Taiwan (up 567k MT), Spain (up 277k MT), Iran (up 418k MT), Italy (up 209k MT), and Pakistan (up 598k MT). These increased exports were three times more than the reduction in China’s soybean imports from the U.S. for the same time period (1.384 MMT lower than 2017). Sales to multiple countries is beneficial long term, reducing the reliance on a single export market. However, increased exports to these countries can be largely attributed to low prices compared to South American supplies. Prices in Brazil and Argentina are $1.50-$2.50 per bushel higher than U.S. prices, largely due to Chinese purchases.
The key marketing period for U.S. soybeans is October through February. With low South American supplies, at this time of year, global purchases should favor the United States. However, historically the majority of U.S. soybean purchases and export shipments at this time of year have been made by China. With the 25 percent retaliatory tariff on soybeans remaining in place, export business to China is likely to be substantially lower than in past years. As such, due to the size of this year’s crop (record U.S. average yield), alternative export markets will be critical to maintain/improve domestic prices. Unfortunately, the past two weeks have seen back-to-back disappointing weekly net export sales and it is very unlikely that other countries will be unable to make up for the loss of U.S. exports to the Chinese market. Without substantial improvements in export sales and shipments it will be difficult for prices to rally.
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 30 under to 7 under the December futures contract with an average of 17 under at the end of the week. December 2018 corn futures closed at $3.67, down 6 cents since last Friday. For the week, December 2018 corn futures traded between $3.66 and $3.78. Corn net sales reported by exporters from October 5-11 were below expectations with net sales of 15.1 million bushels for the 2018/19 marketing year. Exports for the same time period were down 31 percent compared to last week at 43.3 million bushels. Corn export sales and commitments were 34 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 33 percent. Ethanol production for the week ending October 12 was 1.011 million barrels per day, down 29,000 from the previous week. Ethanol stocks were 24.13 million barrels, up 109,000 barrels. Dec/Mar and Dec/Dec future spreads were 12 and 33 cents, respectively.
The Crop Progress report estimated corn condition at 68 percent good-to-excellent and 12 percent poor-to-very poor; corn mature at 96 percent compared to 93 percent last week, 89 percent last year, and a 5-year average of 91 percent; and corn harvested at 39 percent compared to 34 percent last week, 27 percent last year, and a 5-year average of 35 percent. In Tennessee, corn condition was estimated at 76 percent good-to-excellent and 4 percent poor-to-very poor; corn mature at 99 percent compared to 98 percent last week, 99 percent last year, and a 5-year average of 99 percent; and corn harvested at 88 percent compared to 79 percent last week, 90 percent last year, and a 5-year average of 85 percent. In Tennessee, January 2019 corn cash forward contracts averaged $3.84 with a range of $3.68 to $4.03. March 2019 corn futures closed at $3.79, down 6 cents since last Friday. December 2019 corn futures closed at $4.00, down 4 cents since last Friday. Downside price protection could be obtained by purchasing a $4.10 December 2019 Put Option costing 31 cents establishing a $3.79 futures floor.
Soybeans
Average soybean basis strengthened or remained unchanged at Northwest Barge Points, Northwest, and Lower-middle Tennessee and weakened at Memphis and Upper-middle Tennessee. Basis ranged from 98 under to 38 under the November futures contract at elevators and barge points. Average basis at the end of the week was 54 under the November futures contract. November 2018 soybean futures closed at $8.56, down 11 cents since last Friday. For the week, November 2018 soybean futures traded between $8.56 and $8.92. Net sales reported by exporters were below expectations with net sales of 10.8 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 up 31 percent compared to last week at 42.5 million bushels. Soybean export sales and commitments were 37 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 54 percent. Nov/Dec 2018 soybean-to-corn price ratio was 2.33 at the end of the week.
Nov/Jan and Nov/Nov future spreads were 14 and 62 cents, respectively. The Crop Progress report estimated soybean condition at 66 percent good-to-excellent and 11 percent poor-to-very poor; soybeans dropping leaves at 95 percent compared to 91 percent last week, 93 percent last year, and a 5-year average of 92 percent; and soybeans harvested at 38 percent compared to 32 percent last week, 47 percent last year, and a 5-year average of 53 percent. In Tennessee, soybean condition was estimated at 68 percent good-to-excellent and 7 percent poor-to-very poor; soybeans dropping leaves at 90 percent compared to 83 percent last week, 89 percent last year, and a 5-year average of 85 percent; and soybeans harvested at 46 percent compared to 30 percent last week, 37 percent last year, and a 5-year average of 36 percent. In Tennessee, January 2019 soybean cash contracts average $8.67 with a range of $8.43 to $8.81. January 2019 soybean futures closed at $8.70, down 11 cents since last Friday. November 2019 soybean futures closed at $9.18, down 14 cents since last Friday. Downside price protection could be achieved by purchasing a $9.20 November 2019 Put Option which would cost 56 cents and set an $8.64 futures floor. Nov/Dec 2019 soybean-to-corn price ratio was 2.30 at the end of the week.
Cotton
Delta upland cotton spot price quotes for October 11 were 76.8 cents/lb (41-4-34) and 78.55 cents/lb (31-3-35). Adjusted World Price (AWP) increased 1.36 cents to 69.09 cents. Net sales reported by exporters were down from last week at 32,700 bales for the 2018/19 marketing year and 24,200 for the 2019/20 marketing year. Exports for the same time period were 135,300 bales, down 35 percent from last week. Upland cotton export sales were 63 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 46 percent.
The Crop Progress report estimated cotton condition at 35 percent good-to-excellent and 31 percent poor-to-very poor; cotton opening bolls at 85 percent compared to 78 percent last week, 81 percent last year, and a 5-year average of 83 percent; and cotton harvested at 32 percent compared to 25 percent last week, 30 percent last year, and a 5-year average of 25 percent. In Tennessee, cotton condition was estimated at 69 percent good-to-excellent and 10 percent poor-to-very poor; cotton bolls opening at 98 percent compared to 96 percent last week, 97 percent last year, and a 5-year average of 87 percent; and cotton harvested at 50 percent compared to 33 percent last week, 37 percent last year, and a 5-year average of 23 percent. December 2018 cotton futures closed at 77.92, down 0.45 cents since last Friday. For the week, December 2018 cotton futures traded between 77.33 and 79.16 cents. Dec/Mar and Dec/Dec cotton futures spreads were 1.44 cents and -1.24 cents, respectively. March 2019 cotton futures closed at 79.36, down 0.19 cents since last Friday. December 2019 cotton futures closed at 76.68, down 0.31 cents since last Friday. Downside price protection could be obtained by purchasing a 77 cent December 2019 Put Option costing 4.87 cents establishing a 72.13 cent futures floor.
Wheat
Wheat net sales reported by exporters were within expectations with net sales of 17.5 million bushels for the 2018/19 marketing year. Exports for the week were down 2 percent compared to last week at 18.0 million bushels. Wheat export sales were 44 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 62 percent. The Crop Progress report estimated winter wheat planted at 65 percent compared to 57 percent last week, 58 percent last year, and a 5-year average of 67 percent; and winter wheat emerged at 44 percent compared to 30 percent last week, 35 percent last year, and a 5-year average of 41 percent. In Tennessee, winter wheat planted was estimated at 28 percent compared to 17 percent last week, 27 percent last year, and a 5-year average of 22 percent; and winter wheat emerged at 14 percent compared to 9 percent last week, 7 percent last year, and a 5-year average of 5 percent.
December 2018 wheat futures closed at $5.14, down 3 cents since last Friday. December 2018 wheat futures traded between $5.10 and $5.27 this week. December wheat-to-corn price ratio was 1.4. Dec/Mar and Dec/Jul future spreads were 20 cents and 38 cents, respectively. March 2019 wheat futures closed at $5.34, down 3 cents since last Friday. In Tennessee, June/July 2019 wheat cash contracts ranged from $5.31 to $5.70 for the week. July 2019 wheat futures closed at $5.52, down 3 cents since last Friday. Downside price protection could be obtained by purchasing a $5.70 July 2019 Put Option costing 30 cents establishing a $5.40 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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