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Corn And Wheat Were Mixed; Cotton And Soybeans Were Down For The Week
DR. AARON SMITH
KNOXVILLE, TENN.
Announcement of Chinese purchases of soybeans was welcome news early in the week, however the magnitude of the purchases remains to be seen. As such, entering the weekend soybeans retreated from mid-week highs. Next week, markets will pay close attention to the USDA export sales numbers (numbers are always lagged), hints of additional/future purchases, and progress on the resolution of the China-US trade dispute.
In December, the 2019 (2018) new crop harvest futures contract for: corn has averaged $4.03/bu ($3.84/bu); soybeans have averaged $9.58/bu ($9.91/bu); wheat has averaged $5.35/bu ($4.50/bu); and cotton has averaged 77.84 cents (72.74 cents). So far in December, new crop: corn is up 19 cents, soybeans are down 33 cents, wheat is up 85 cents, and cotton is up 5.1 cents.
Given the current prices presented by futures markets, the expectation would be more corn and cotton acres planted in the US and fewer soybean acres, however there is still a substantial amount of time between now and when planters will enter fields so these relative prices will likely change.
At this point in time, producers should be examining the 2019 cost of production for each crop, as costs (and access to credit) may alter planting intentions. Relative input costs (seed, fertilizer, chemical, etc.) between commodities are as important to analyze as relative prices. For example, increases in nitrogen fertilizer prices can offset higher corn prices (compared to soybeans), in terms of profitability comparisons between the two commodities. It is also important to note, the year over year benefits of crop rotation should be consider when making planting decisions.
Corn
Ethanol production for the week ending December 7 was 1.046 million barrels per day, down 23,000 from the previous week. Ethanol stocks were 22.89 million barrels, down 140,000 barrels. Corn net sales reported by exporters from November 30-December 6 were within expectations with net sales of 35.6 million bushels for the 2018/19 marketing year and 6.4 million bushels for the 2019/20. Exports for the same time period were down 18 percent compared to last week at 37.5 million bushels. Corn export sales and commitments were 44 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 49 percent. Across Tennessee, average corn basis (cash price-nearby futures price) weakened at Memphis, Northwest Barge Points, Northwest, and Upper-middle Tennessee. Overall, basis for the week ranged from 16 under to 8 over the March futures contract with an average of 6 under at the end of the week. March 2019 corn futures closed at $3.84 down 1 cent since last Friday. For the week, March 2019 corn futures traded between $3.81 and $3.87. May 2019 corn futures closed at $3.92, unchanged since last Friday. Mar/May and Mar/Dec future spreads were 8 and 19 cents.
In Tennessee, September 2019 corn cash forward contracts averaged $3.90 with a range of $3.79 to $4.04. December 2019 corn futures closed at $4.03, unchanged since last Friday. Downside price protection could be obtained by purchasing a $4.10 December 2019 Put Option costing 29 cents establishing a $3.81 futures floor.
Soybeans
Net sales reported by exporters were within expectations with net sales of 29.1 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 8 percent compared to last week at 42.1 million bushels. Soybean export sales and commitments were 48 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 75 percent. Average soybean basis weakened at Northwest Barge Points and strengthened or remained unchanged at Memphis, Northwest, and Upper-middle Tennessee. Basis ranged from 61 under to 22 under the January futures contract at elevators and barge points. Average basis at the end of the week was 37 under the January futures contract. January 2019 soybean futures closed at $9.00, down 16 cents since last Friday. For the week, January 2019 soybean futures traded between $9.00 and $9.28. March 2019 soybean futures closed at $9.13, down 16 cents since last Friday. Jan/Mar and Jan/Nov future spreads were 13 and 51 cents, respectively.
In Tennessee, October/November 2019 soybean cash contracts average $9.28 with a range of $8.94 to $9.46. November 2019 soybean futures closed at $9.51, down 10 cents since last Friday. Downside price protection could be achieved by purchasing a $9.60 November 2019 Put Option which would cost 59 cents and set a $9.01 futures floor. Nov/Dec 2019 soybean-to-corn price ratio was 2.36 at the end of the week.
Cotton
Net sales reported by exporters were down from last week with net sales of 47,100 bales for the 2018/19 marketing year and 33,500 bales for the 2019/20 marketing year. Exports for the same time period were 154,500 bales, down 3 percent from last week. Upland cotton export sales were 71 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 62 percent. Delta upland cotton spot price quotes for December 13 were 76.66 cents/lb (41-4-34) and 78.41 cents/lb (31-3-35). Adjusted World Price (AWP) increased 0.43 cents to 69.77 cents. March 2019 cotton futures closed at 79.6, down 0.63 cents since last Friday. For the week, March 2019 cotton futures traded between 78.62 and 80.66 cents. Mar/May and Mar/Dec cotton futures spreads were 1.07 cents and -1.91 cents. May 2019 cotton futures closed at 80.67, down 0.5 cents since last Friday.
December 2019 cotton futures closed at 77.69, down 0.34 cents since last Friday. Downside price protection could be obtained by purchasing a 78 cent December 2019 Put Option costing 5.14 cents establishing a 72.86 cent futures floor.
Wheat
Wheat net sales reported by exporters were within expectations with net sales of 27.7 million bushels for the 2018/19 marketing year. Exports for the week were up 2 percent compared to last week at 18 million bushels. Wheat export sales were 60 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 77 percent. March 2019 wheat futures closed at $5.30, down 1 cent since last Friday. March 2019 wheat futures traded between $5.17 and $5.38 this week. March wheat-to-corn price ratio was 1.38. Mar/May and Mar/Jul future spreads were 6 cents and 12 cents. May 2019 wheat futures closed at $5.36, unchanged since last Friday.
In Tennessee, June/July 2019 wheat cash contracts ranged from $5.21 to $5.63 for the week. July 2019 wheat futures closed at $5.42, up 2 cents since last Friday. Downside price protection could be obtained by purchasing a $5.50 July 2019 Put Option costing 36 cents establishing a $5.14 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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