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Corn, Cotton, And Wheat Were Down; And Soybeans Were Mixed For The Week
DR. AARON SMITH
KNOXVILLE, TENN.
This week the USDA released the November WASDE and Crop Production re-ports. Details of the WASDE report for corn, soybeans, cotton, and wheat are available at:
https://ag.tennessee.edu/arec/Pages/MonthlyCropComments.aspx.
The Crop Production report estimated 2018 National (Tennessee) corn, soybean, and cotton yields at: 178.9 bu/acre; down 1.8 bu/acre (173 bu/acre; down 1 bu/acre), 52.1 bu/acre; down 1 bu/acre (48 bu/acre down 2 bu/acre), and 836 lb/acre; down 51 lb/acre (1,048 lb/acre; up 14 lb/acre).
For the week, markets moved mostly sideways to down. The yield revisions for corn, soybeans, and cotton, were viewed as positive for prices, however the markets were anticipating yield decreases so the price response was muted.
For corn, the major surprise was the dramatic revisions to Chinese stocks dating back to the 2007/2008 marketing year. 2018/19 Chinese corn stocks were increases 5.9 billion bushels based on historical revisions. While the revisions are extreme, there will likely be limited long-term impact on prices. Chinese production and stocks have long been difficult to quantify for numerous reasons. Furthermore, Chinese production and stocks rarely make it to global markets (they are kept within China). As such, the more important estimates are imports which the USDA has more accurate information based on trade data.
For soybeans, there are two major concerns on the U.S. balance sheet. First, the projected 2018/19 ending stocks of 955 million bushels is an all-time high, substantially exceeding the previous high of 573 million bushels in 2007. Second, a 160 million bushel decrease in exports to 1.9 billion bushels for the 2018/19 marketing year would be the lowest amount exported since 2014/15. Both issues are tied to the Chinese tariff situation which remains an unknown as harvest concludes.
The USDA’s Tennessee cotton yield revision (up 14 lb/acre from last month) is a little bit curious given some of the harvest challenges producers have faced this Fall, however the greater concern may be decreased quality. Overall Tennessee remains a bright spot for cotton production given some of the challenges faced in Georgia, the Carolina’s, and parts of Texas.
Corn
The Crop Progress report estimated corn harvested at 76 percent compared to 63 percent last week, 68 percent last year, and a 5-year average of 77 percent. In Tennessee, corn harvested was estimated at 96 percent compared to 95 percent last week, 98 percent last year, and a 5-year average of 96 percent. Ethanol production for the week ending November 2 was 1.068 million barrels per day, up 9,000 from the previous week. Ethanol stocks were 23.15 million barrels, up 404,000 barrels. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis, Northwest Barge Points, Northwest, Upper-middle, and Lower-middle Tennessee. Overall, basis for the week ranged from 25 under to 10 over the December futures contract with an average of 2 under at the end of the week. December 2018 corn futures closed at $3.69, down 2 cents since last Friday. For the week, December 2018 corn futures traded between $3.66 and $3.79.
Corn net sales reported by exporters from October 26 to November 1 were within expectations with net sales of 27.6 million bushels for the 2018/19 marketing year. Exports for the same time period were up 80 percent compared to last week at 53.4 million bushels. Corn export sales and commitments were 36 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 39 percent. Dec/Mar and Dec/Dec future spreads were 12 and 33 cents, respectively. In Tennessee, January 2019 corn cash forward contracts averaged $3.86 with a range of $3.73 to $4.01. March 2019 corn futures closed at $3.81, down 2 cents since last Friday. December 2019 corn futures closed at $4.02, down 1 cent since last Friday. Downside price protection could be obtained by purchasing a $4.10 December 2019 Put Option costing 30 cents establish-ing a $3.80 futures floor.
Soybeans
The Crop Progress report estimated soybeans harvested at 83 percent compared to 72 percent last week, 89 percent last year, and a 5-year average of 89 percent. In Tennessee, soybeans harvested were estimated at 68 percent compared to 60 percent last week, 67 percent last year, and a 5-year average of 69 percent. Average soybean basis strengthened or remained unchanged at Memphis, Northwest Barge Points, Northwest, Lower-middle, and Upper-middle Tennessee. Basis ranged from 72 under to 19 under the January futures contract at elevators and barge points. Average basis at the end of the week was 38 under the January futures contract. January 2019 soybean futures closed at $8.86, down 1 cent since last Friday. For the week, January 2019 soybean futures traded between $8.64 and $8.93. In Tennessee, January 2019 soybean cash contracts average $8.60 with a range of $8.29 to $9.01.
Net sales reported by exporters were below expectations with net sales of 14.3 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 14 percent compared to last week at 41.7 million bushels. Soybean export sales and commitments were 39 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 64 percent. Jan/Mar and Jan/Nov future spreads were 14 and 50 cents, respectively. March 2019 soybean futures closed at $9.00, unchanged since last Friday. November 2019 soybean futures closed at $9.36, up 3 cents since last Friday. Downside price protection could be achieved by purchasing a $9.40 November 2019 Put Option which would cost 59 cents and set an $8.81 futures floor. Nov/Dec 2019 soybean-to-corn price ratio was 2.33 at the end of the week.
Cotton
The Crop Progress report estimated cotton condition at 33 percent good-to-excellent and 35 percent poor-to-very poor; cotton opening bolls at 94 percent compared to 91 percent last week, 96 percent last year, and a 5-year average of 97 percent; and cotton harvested at 49 percent compared to 44 percent last week, 53 percent last year, and a 5-year average of 52 percent. In Tennessee, cotton condition was estimated at 61 percent good-to-excellent and 15 percent poor-to-very poor; and cotton harvested at 78 percent compared to 68 percent last week, 70 percent last year, and a 5-year average of 59 percent. Delta upland cotton spot price quotes for November 8 were 77.26 cents/lb (41-4-34) and 79.01 cents/lb (31-3-35). Adjusted World Price (AWP) increased 1.3 cents to 69.86 cents. December 2018 cotton futures closed at 78.09, down 0.7 cents since last Friday. For the week, December 2018 cotton futures traded between 76.83 and 80.50 cents.
Net sales reported by exporters were up from last week with net sales of 91,000 bales for the 2018/19 marketing year and 15,500 bales for the 2019/20 marketing year. Exports for the same time period were 151,000 bales, up 38 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 51 percent. Dec/Mar and Dec/Dec cotton futures spreads were 1.77 cents and 0.2 cents, respectively. March 2019 cotton futures closed at 79.86, down 0.45 cents since last Friday. December 2019 cotton futures closed at 78.29, down 0.02 cents since last Friday. Downside price protection could be obtained by purchasing a 79 cent December 2019 Put Option costing 5.22 cents establishing a 73.78 cent futures floor.
Wheat
Wheat net sales reported by exporters were above expectations with net sales of 24.3 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 21 percent compared to last week at 12.1 million bushels. Wheat export sales were 50 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 68 percent. December 2018 wheat futures closed at $5.02, down 6 cents since last Friday. December 2018 wheat futures traded between $5.00 and $5.17 this week. December wheat-to-corn price ratio was 1.36. Dec/Mar and Dec/Jul future spreads were 10 cents and 24 cents, respectively. March 2019 wheat futures closed at $5.12, down 12 cents since last Friday.
The Crop Progress report estimated winter wheat condition at 71 percent good-to-excellent and 12 percent poor-to-very poor; winter wheat planted at 84 percent compared to 78 percent last week, 90 percent last year, and a 5-year average of 90 percent; and winter wheat emerged at 70 percent compared to 63 percent last week, 74 percent last year, and a 5-year average of 77 percent. In Tennessee, winter wheat condition was estimated 67 percent good-to-excellent and 5 percent poor-to-very poor; winter wheat planted at 63 percent compared to 51 percent last week, 66 percent last year, and a 5-year average of 63 percent; and winter wheat emerged at 44 percent compared to 32 percent last week, 42 percent last year, and a 5-year average of 37 percent. In Tennessee, June/July 2019 wheat cash contracts ranged from $5.19 to $5.51 for the week. July 2019 wheat futures closed at $5.26, down 16 cents since last Friday. Downside price protection could be obtained by purchasing a $5.30 July 2019 Put Option costing 34 cents establishing a $4.96 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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