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USDA Announces Second Round Of Commodity Payments
DR. AARON SMITH
KNOXVILLE, TENN.
The USDA confirmed that a second round of payments under the Market Facilitation Program (MFP) would be provided to several commodities, including: corn, cotton, soybeans, and wheat. Previously payments were announced on 50 percent of 2018 production. This week’s announcement provided payments on the remaining 50 percent of 2018 production. The MFP payments were implemented to assist producers that were adversely affected by retaliatory tariffs. Producers are required to complete the MFP application (Form CCC-910) at USDA-FSA prior to January 15, 2019, however they have until May 1 to certify production. MFP payment rates are: $0.06/lb for cotton; $0.01/bu for corn; $1.65/bu for soybeans; and $0.14/bu for wheat. Combined payment limits of $125,000 for corn, cotton, soybeans, and wheat are capped per person or legal entity. It is important to note that production is certified by the producer, however it is important that appropriate records are maintained for verification purposes (including any quality adjustments).
Soybeans received the largest benefit (and were also affected more severely by tariffs than other commodities) from the MFP program, however how individual producers fared was largely dependent on their marketing plan. Take two simple examples: 1) a producer who priced 50 percent of his production before June 1 and 50 percent at harvest; and 2) a producer who priced 100 percent of his production at harvest. Assuming production of 50 bu/acre, cash forward contract price of $10.18/bu (average at Tennessee elevators and barge points from March 1-May 31, 2018), and a $8.22/bu harvest price (average spot price at Tennessee elevators and barge points from Oct 1- Nov 30, 2018).
In scenario 1, the producer would receive 50 bu/acre x $10.18/bu x 50% + 50 bu/acre x $8.22/bu x 50% + 50 bu/acre x $1.65/bu = $254.50 + $205.50 + $82.50 = $542.50/acre (or $10.85/bu). In scenario 2, the producer would receive: 50 bu/acre x $8.22/bu x 100% + 50 bu/acre x $1.65/bu = $493.5/acre (or $9.87/bu). This is almost $1/bu difference in average price (cash price + MFP payment). While MFP payments won’t make all soybean producers profitable in 2018, those that priced a higher proportion of their production early in 2018 will be better off.
Corn
Ethanol production for the week ending December 14 was 1.046 million barrels per day, unchanged from the previous week. Ethanol stocks were 23.873 million barrels, up 983,000 barrels. Corn net sales reported by exporters from December 7-13 were within expectations with net sales of 77.7 million bushels for the 2018/19 marketing year and 21.4 million bushels for the 2019/20 marketing year. Exports for the same time period were up 3 percent compared to last week at 38.4 million bushels. Corn 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 51 percent. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened at Memphis, Northwest Barge Points, Northwest, and Upper-middle Tennessee. Overall, basis for the week ranged from 15 under to 11 over the March futures contract with an average of 3 under at the end of the week. March 2019 corn futures closed at $3.78 down 6 cents since last Friday. For the week, March 2019 corn futures traded between $3.74 and $3.86. May 2019 corn futures closed at $3.86, down 6 cents since last Friday. Mar/May and Mar/Dec future spreads were 8 and 21 cents.
In Tennessee, September 2019 corn cash forward contracts averaged $3.89 with a range of $3.72 to $4.05. December 2019 corn futures closed at $3.99, down 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
Net sales reported by exporters were above expectations with net sales of 104.2 million bushels for the 2018/19 marketing year and 4.7 million bushels for the 2019/20 marketing year. Exports for the same period were up 23 percent compared to last week at 49.2 million bushels. Soybean export sales and commitments were 53 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 78 percent. Average soybean basis strengthened at North-west Barge Points, Memphis, Northwest, and Upper-middle Tennessee. Basis ranged from 58 under to 8 under the January futures contract at elevators and barge points. Average basis at the end of the week was 29 under the January futures contract. January 2019 soybean futures closed at $8.84, down 16 cents since last Friday. For the week, January 2019 soybean futures traded between $8.83 and $9.12. March 2019 soybean futures closed at $8.97, down 16 cents since last Friday. Jan/Mar and Jan/Nov future spreads were 13 and 52 cents, respectively.
In Tennessee, October/November 2019 soybean cash contracts average $9.05 with a range of $8.45 to $9.36. November 2019 soybean futures closed at $9.36, down 15 cents since last Friday. Downside price protection could be achieved by purchasing a $9.40 November 2019 Put Option which would cost 50 cents and set an $8.90 futures floor. Nov/Dec 2019 soybean-to-corn price ratio was 2.35 at the end of the week.
Cotton
Net sales reported by exporters were up from last week with net sales of 142,300 bales for the 2018/19 marketing year and 1,700 bales for the 2019/20 marketing year. Exports for the same time period were 154,300 bales, unchanged from last week. Upland cotton export sales were 72 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 64 percent. Delta upland cotton spot price quotes for December 20 were 72.31 cents/lb (41-4-34) and 74.06 cents/lb (31-3-35). Adjusted World Price (AWP) decreased 1.42 cents to 68.35 cents. March 2019 cotton futures closed at 73.18, down 6.42 cents since last Friday. For the week, March 2019 cotton futures traded between 73.07 and 77.9 cents. Mar/May and Mar/Dec cotton futures spreads were 1.44 cents and 0.88 cents. May 2019 cotton futures closed at 74.62, down 6.05 cents since last Friday.
December 2019 cotton futures closed at 74.06, down 3.63 cents since last Friday. Downside price protection could be obtained by purchasing a 75 cent December 2019 Put Option costing 4.96 cents establishing a 70.04 cent futures floor.
Wheat
Wheat net sales reported by exporters were below expectations with net sales of 11.5 million bushels for the 2018/19 marketing year. Exports for the week were up 34 percent compared to last week at 24.1 million bushels. Wheat export sales were 62 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 79 percent. March 2019 wheat futures closed at $5.14, down 16 cents since last Friday. March 2019 wheat futures traded between $5.12 and $5.37 this week. March wheat-to-corn price ratio was 1.36. Mar/May and Mar/Jul future spreads were 7 cents and 14 cents. May 2019 wheat futures closed at $5.21, down 15 cents since last Friday.
In Tennessee, June/July 2019 wheat cash contracts ranged from $5.22 to $5.63 for the week. July 2019 wheat futures closed at $5.28, down 14 cents since last Friday. Downside price protection could be obtained by purchasing a $5.30 July 2019 Put Option costing 29 cents establishing a $5.01 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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