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Path To Trade Dispute Resolution Could Solidify Late Week Soybean Rally
DR. AARON SMITH
KNOXVILLE, TENN.
A strong finish to the week, due to optimism regarding trade discussions, led prices to close up for the week across the board. Markets will closely monitor trade news out of Buenos Aires, Argentina where G-20 leaders are meeting November 30 and December 1. The anticipated meeting between Presidents Trump and Xi (on Saturday) will dictate price direction early next week, particularly for soybeans. Positive news, indicating a path toward a trade dispute resolution between the world’s two largest economies, will likely result in a continuation of the late week rally, possibly breaking through strong resistance at $9.00 (January soybean contract). Negative reports could trigger a retest of the six month low of $8.26 (January soybean contract).
Total U.S. export commitments (accumulated exports and outstanding sales) for corn, soybeans, and wheat continue to languish well below the required pace to meet USDA’s marketing year projection for the 2018/19 marketing year. Cotton, the lone bright spot, has seen sales wain in recent weeks after very strong sales this summer and early fall. Currently, cotton export commitments are 70 percent of the USDA marketing year total well above the 5-year average pace of 58 percent. By comparison, corn, soybean, and wheat export commitments (5-year averages) are 41 percent (46 percent), 45 percent (71 percent), and 54 percent (73 percent).
Exports are an important demand source for all four commodities that help increase the prices U.S. producers receive for their commodities. Over 85 percent of the cotton, 45 percent of the soybeans, 15 percent of the corn, and 45 percent of the wheat produced in the U.S. are exported to other countries. Access to international markets and fair trade with other countries will be essential to price improvements as we enter 2019.
Corn
The Crop Progress report estimated corn harvested at 94 percent compared to 90 percent last week, 94 percent last year, and a 5-year average of 96 percent. Ethanol production for the week ending November 23 was 1.048 million barrels per day, up 6,000 from the previous week. Ethanol stocks were 22.93 million barrels, down 139,000 barrels. Corn net sales reported by exporters from November 16-22 were above expectations with net sales of 49.9 million bushels for the 2018/19 marketing year. Exports for the same time period were up 26 percent compared to last week at 41.5 million bushels. Corn 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 46 percent. Across Tennessee, aver-age corn basis (cash price-nearby futures price) weakened at Northwest Tennessee and strengthened at Memphis, Northwest Barge Points, and Upper-middle Tennessee. Overall, basis for the week ranged from 16 under to 10 over the December futures contract with an average of 1 under at the end of the week. December 2018 corn futures closed at $3.66. In Tennessee, January 2019 corn cash forward contracts averaged $3.74 with a range of $3.58 to $3.90. Mar/May and Mar/Dec future spreads were 8 and 22 cents. March 2019 corn futures closed at $3.77, up 7 cents since last Friday. For the week, March 2019 corn futures traded between $3.67 and $3.78.
December 2019 corn futures closed at $3.99, up 4 cents since last Friday. Downside price protection could be obtained by purchasing a $4.00 December 2019 Put Option costing 25 cents establishing a $3.75 futures floor.
Soybeans
The Crop Progress report estimated soybeans harvested at 94 percent compared to 91 percent last week, 99 percent last year, and a 5-year average of 98 percent. In Tennessee, soybeans harvested were estimated at 83 percent compared to 74 percent last week, 90 percent last year, and a 5-year average of 92 percent. Net sales reported by exporters were within expectations with net sales of 23.1 million bushels for the 2018/19 marketing year. Exports for the same period were down 20 percent compared to last week at 37.6 million bushels. Soybean export sales and commitments were 45 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 71 percent. Average soybean basis weakened or remained unchanged at Memphis, Northwest Barge Points, Northwest, and Upper-middle Tennessee. Basis ranged from 66 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 $8.94, up 13 cents since last Friday. For the week, January 2019 soybean futures traded between $8.57 and $8.96. In Tennessee, January 2019 soybean cash contracts average $8.64 with a range of $8.20 to $9.13. March 2019 soybean futures closed at $9.07, up 13 cents since last Friday. Jan/Mar and Jan/Nov future spreads were 13 and 45 cents, respectively.
November 2019 soybean futures closed at $9.39, up 9 cents since last Friday. Downside price protection could be achieved by purchasing a $9.40 November 2019 Put Option which would cost 57 cents and set an $8.83 futures floor. Nov/Dec 2019 soybean-to-corn price ratio was 2.35 at the end of the week.
Cotton
The Crop Progress report estimated cotton harvested at 70 percent compared to 59 percent last week, 78 percent last year, and a 5-year average of 77 percent. In Tennessee, cotton harvested was estimated at 92 percent compared to 87 percent last week, 90 percent last year, and a 5-year average of 88 percent. Net sales reported by exporters were down from last week with net sales of 176,800 bales for the 2018/19 marketing year and 14,200 bales for the 2019/20 marketing year. Exports for the same time period were 126,100 bales, down 16 percent from last week. Upland cotton export sales were 70 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 58 percent. Delta upland cotton spot price quotes for November 29 were 75.93 cents/lb (41-4-34) and 77.68 cents/lb (31-3-35). Adjusted World Price (AWP) increased 0.03 cents to 67.92 cents. March 2019 cotton futures closed at 78.91, up 1.69 cents since last Friday. For the week, March 2019 cotton futures traded between 77.18 and 79.32 cents. Mar/May and Mar/Dec cotton futures spreads were 1.04 cents and -1.88 cents. May 2019 cotton futures closed at 79.95, up 1.46 cents since last Friday.
December 2019 cotton futures closed at 77.03, up 0.48 cents since last Friday. Downside price protection could be obtained by purchasing a 78 cent December 2019 Put Option costing 5.38 cents establishing a 72.62 cent futures floor.
Wheat
Wheat net sales reported by exporters were within expectations with net sales of 13.9 million bushels for the 2018/19 marketing year. Exports for the week were down 50 percent compared to last week at 9.2 million bushels. Wheat export sales were 54 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 73 percent. March 2019 wheat futures closed at $5.15, up 8 cents since last Friday. March 2019 wheat futures traded between $5.04 and $5.19 this week. March wheat-to-corn price ratio was 1.37. Mar/May and Mar/Jul future spreads were 6 cents and 12 cents. May 2019 wheat futures closed at $5.21, up 8 cents since last Friday.
The Crop Progress report estimated winter wheat condition at 55 percent good-to-excellent and 13 percent poor-to-very poor; winter wheat planted at 95 percent compared to 93 percent last week, 99 percent last year, and a 5-year average of 99 percent; and winter wheat emerged at 86 percent compared to 81 percent last week, 91 percent last year, and a 5-year average of 92 percent. In Tennessee, winter wheat condition was estimated at 67 percent good-to-excellent and 2 percent poor-to-very poor; winter wheat planted at 83 percent compared to 74 percent last week and 90 percent last year; and winter wheat emerged at 67 percent compared to 59 percent last week and 78 percent last year. In Tennessee, June/July 2019 wheat cash contracts ranged from $5.04 to $5.40 for the week. July 2019 wheat futures closed at $5.27, up 7 cents since last Friday. Downside price protection could be obtained by purchasing a $5.30 July 2019 Put Option costing 32 cents establishing a $4.98 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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