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Export Commitments Lag Causing Uncertain Market Futures
DR. AARON SMITH
KNOXVILLE, TENN.
Futures prices declined for the week as tepid weekly export sales numbers for corn and soybeans resulted in further concerns about dispersing this year’s large domestic crop. Soybean and wheat export commitments (outstanding sales and accumulated exports) are well behind the pace to meet USDA projections. Currently, wheat export commitments are 45 percent of the USDA’s marketing year goal. This compares unfavorably to last year at 68 percent and the five year average of 64 percent for the same time period. Similarly, soybean export commitments are at 38 percent of USDA’s marketing year total, compared to 50 percent last year and a five year average of 57 percent. Chinese tariffs have obviously played a substantial role in reduced soybean export commitments. However, these are troubling numbers during harvest when export sales are typically at their highest. Reduced exports will increase domestic carry-over and further decrease cash prices.
Corn and cotton paint a slightly more favorable export picture. Corn export commitments are 34 percent of the USDA’s marketing year total, compared to 28 percent last year and a five year average of 34 percent. Cotton export commitments are 64 percent of the USDA’s marketing year total, compared to 55 percent last year and a five year average of 47 percent.
One of the reasons for relatively strong export commitments of cotton and corn, compared to soybeans and wheat, can be found by examining projected global ending stocks for the 2018/19 marketing year. Global cotton stocks are projected to be down for the fourth consecutive year (111.74 million bales in 2104/15 to 74.45 at the end of the 2018/19 marketing year). Global corn stocks are projected to be 1.5 billion bushels lower than last year, at 6.2 billion bushels, the second consecutive year-over-year decrease in global corn stocks.
On the other hand, global soybean stocks are projected up at 4.043 billion bushels, an all-time high and 1.194 billion bushels greater than four years ago. Global wheat stocks are down from last year but are still at the second highest global stocks of all-time at 9.56 billion bushels. Access to foreign markets is essential to agriculture in the U.S. and working out trade issues with China would undoubtedly help improve prices, however it is important to realize that the under lying global supply and demand fundamentals will continue to dictate long term price direction.
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 28 under to 8 under the December futures contract with an average of 16 under at the end of the week. December 2018 corn futures closed at $3.67, unchanged since last Friday. For the week, December 2018 corn futures traded between $3.60 and $3.72. Corn net sales reported by exporters from October 12-18 were below expectations with net sales of 13.8 million bushels for the 2018/19 marketing year and 1.1 million bushels for the 2019/20 marketing year. Exports for the same time period were up 10 percent compared to last week at 47.8 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 34 percent. Ethanol production for the week ending October 19 was 1.024 million barrels per day, up 13,000 from the previous week. Ethanol stocks were 23.897 million barrels, down 233,000 barrels. Dec/Mar and Dec/Dec future spreads were 13 and 35 cents, respectively.
The Crop Progress report estimated corn condition at 68 percent good-to-excellent and 12 percent poor-to-very poor; and corn harvested at 49 percent compared to 39 percent last week, 37 percent last year, and a 5-year average of 47 percent. In Tennessee, corn condition was estimated at 75 percent good-to-excellent and 4 percent poor-to-very poor; and corn harvested at 92 percent compared to 88 percent last week, 94 percent last year, and a 5-year average of 90 percent. In Tennessee, January 2019 corn cash forward contracts averaged $3.78 with a range of $3.59 to $3.98. March 2019 corn futures closed at $3.80, up 1 cent since last Friday. December 2019 corn futures closed at $4.02, up 2 cents since last Friday. Downside price protection could be obtained by purchasing a $4.10 December 2019 Put Option costing 30 cents establishing a $3.80 futures floor.
Soybeans
Average soybean basis strengthened or remained unchanged at Memphis, Northwest Barge Points, Northwest, Upper-middle, and Lower-middle Tennessee. Basis ranged from 76 under to 27 under the November futures contract at elevators and barge points. Average basis at the end of the week was 47 under the November futures contract. November 2018 soybean futures closed at $8.45, down 11 cents since last Friday. For the week, November 2018 soybean futures traded between $8.40 and $8.63. Net sales reported by exporters were below expectations with net sales of 7.8 million bushels for the 2018/19 marketing year and 0.04 million bushels for the 2019/20 marketing year. Exports for the same period were down 4 percent compared to last week at 40.8 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 57 percent. Nov/Dec 2018 soybean-to-corn price ratio was 2.3 at the end of the week.
Nov/Jan and Nov/Nov future spreads were 12 and 64 cents, respectively. The Crop Progress report estimated soybean condition at 66 percent good-to-excellent and 11 percent poor-to-very poor; and soybeans harvested at 53 percent compared to 38 percent last week, 67 percent last year, and a 5-year average of 69 percent. In Tennessee, soybean condition was estimated at 71 percent good-to-excellent and 7 percent poor-to-very poor; and soybeans harvested at 52 percent compared to 46 percent last week, 47 percent last year, and a 5-year average of 48 percent. In Tennessee, January 2019 soybean cash contracts average $8.39 with a range of $8.21 to $8.53. January 2019 soybean futures closed at $8.57, down 13 cents since last Friday. November 2019 soybean futures closed at $9.09, down 9 cents since last Friday. Downside price protection could be achieved by purchasing a $9.20 November 2019 Put Option which would cost 59 cents and set an $8.61 futures floor. Nov/Dec 2019 soybean-to-corn price ratio was 2.26 at the end of the week.
Cotton
Delta upland cotton spot price quotes for October 25 were 76.43 cents/lb (41-4-34) and 78.18 cents/lb (31-3-35). Adjusted World Price (AWP) increased 0.32 cents to 69.41 cents. Net sales reported by exporters were down from last week at 40,600 bales for the 2018/19 marketing year and 4,600 for the 2019/20 marketing year. Exports for the same time period were 139,200 bales, up 3 percent from last week. Upland cotton export sales were 64 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 47 percent.
The Crop Progress report estimated cotton condition at 34 percent good-to-excellent and 33 percent poor-to-very poor; cotton opening bolls at 88 percent compared to 85 percent last week, 86 percent last year, and a 5-year average of 89 percent; and cotton harvested at 39 percent compared to 32 percent last week, 36 percent last year, and a 5-year average of 33 percent. In Tennessee, cotton condition was estimated at 69 percent good-to-excellent and 8 percent poor-to-very poor; cotton bolls opening at 99 percent compared to 98 percent last week, 100 percent last year, and a 5-year average of 92 percent; and cotton harvested at 60 percent compared to 50 percent last week, 54 percent last year, and a 5-year average of 35 percent. December 2018 cotton futures closed at 78.53, up 0.61 cents since last Friday. For the week, December 2018 cotton futures traded between 76.14 and 80.14 cents. Dec/Mar and Dec/Dec cotton futures spreads were 1.29 cents and -1.2 cents, respectively. March 2019 cotton futures closed at 79.82, 0.46 cents since last Friday. December 2019 cotton futures closed at 77.33, up 0.65 cents since last Friday. Downside price protection could be obtained by purchasing a 78 cent December 2019 Put Option costing 5.02 cents establishing a 72.98 cent futures floor.
Wheat
Wheat net sales reported by exporters were within expectations with net sales of 16.3 million bushels for the 2018/19 marketing year and 0.2 million bushels for the 2019/20 marketing year. Exports for the week were down 19 percent compared to last week at 14.7 million bushels. Wheat export sales were 45 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 64 percent. The Crop Progress report estimated winter wheat planted at 72 percent compared to 65 percent last week, 73 percent last year, and a 5-year average of 77 percent; and winter wheat emerged at 53 percent compared to 44 percent last week, 50 percent last year, and a 5-year average of 55 percent. In Tennessee, winter wheat condition was estimated 61 percent good-to-excellent and 8 percent poor-to-very poor; winter wheat planted at 36 percent compared to 28 percent last week, 39 percent last year, and a 5-year average of 34 percent; and winter wheat emerged at 20 percent compared to 14 percent last week, 13 percent last year, and a 5-year average of 12 percent.
December 2018 wheat futures closed at $5.05, down 9 cents since last Friday. December 2018 wheat futures traded between $4.96 and $5.14 this week. December wheat-to-corn price ratio was 1.38. Dec/Mar and Dec/Jul future spreads were 19 cents and 38 cents, respectively. March 2019 wheat futures closed at $5.24, down 10 cents since last Friday. In Tennessee, June/July 2019 wheat cash contracts ranged from $5.09 to $5.59 for the week. July 2019 wheat futures closed at $5.43, down 9 cents since last Friday. Downside price protection could be obtained by purchasing a $5.50 July 2019 Put Option costing 39 cents establishing a $5.11 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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