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2018 Will Likely Be Remembered For The Many External Influences
DR. AARON SMITH
KNOXVILLE, TENN.
2018 was an eventful year in corn, cotton, soybean, and wheat markets. Trade, domestic policy, global economic growth, large yields, and poor harvest conditions all had substantial impacts on commodity prices. As always, supply and demand played an important role in commodity markets however, 2018 will likely be remembered for the many external influences – trade disruptions, Market Facilitation Program payments, a New Farm Bill, and government shut down to name a few – that inserted tremendous volatility into commodity prices and producer profitability.
Looking out to the 2019 crop some price prospects have improved, compared to 2018, others have deteriorated. Last year at this time the new crop harvest contracts (2018 crop year) for the month of December (2017) averaged: $3.84/bu for corn; $9.91/bu for soybeans; 72.74 cents/lb for cotton; and $4.50/bu for wheat. In 2018, the new crop harvest contract (2019 crop year) for the month of December (2018) averaged: $4.01/bu for corn; $9.48/bu for soybeans; 76.25 cents/lb for cotton; and $5.34/bu for wheat. So the good news is corn, cotton and wheat were up 17 cents, 3.51 cents, and 84 cents (soybean prices were down 43 cents form a year ago).
The bad news is that much of the adverse influences on commodity prices in 2018 continues to persist in 2019. Trade disruption with China, while showing positive signs, is still unresolved and adversely affecting agricultural exports. For domestic policy, a new Farm Bill provides some very welcome farm safety net predictability for the next five years, however the government shut down does not provide evidence that Washington is any less partisan/functional than in the recent past. U.S. and global economic growth was a tremendous positive for most of 2018 – global economic growth typically leads to greater consumption of agricultural commodities, thus typically providing positive price reaction. Unfortunately, there are some concerns – for those that follow the Dow Jones Industrial Average (DJIA) and other equity market indices it has been a roller coaster ride with massive swings, however a downward trend has persisted recently. The large US crop was reduced by tremendous harvest difficulties in many regions, including Tennessee – a very unfortunate occurrence because of depressed prices and already tight profit margins. In South America early indications were a record large soybean crop was on its way for early 2019, however expectations have been tapered due dry weather in several key production regions in Brazil. January and February will provide further transparency as to the size of the Brazilian soybean crop.
***Due to the partial government shut down some USDA information is currently unavailable***
Corn
Ethanol production for the week ending December 21 was 1.042 million barrels per day, down 4,000 from the previous week. Ethanol stocks were 23.133 million barrels, down 740,000 barrels. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened at Memphis, Northwest, and Upper-middle Tennessee and weakened at Northwest Barge Points, Overall, basis for the week ranged from 15 under to 20 over the March futures contract with an average of 1 under at the end of the week. March 2019 corn futures closed at $3.83 up 8 cents since last Friday. For the week, March 2019 corn futures traded between $3.72 and $3.83. May 2019 corn futures closed at $3.91, up 8 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 $3.74 to $4.01. December 2019 corn futures closed at $4.04, up 7 cents 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
Average soybean basis strengthened at Northwest Barge Points, Memphis, Northwest, and Upper-middle Tennessee. Basis ranged from 67 under to 15 under the March futures contract at elevators and barge points. Average basis at the end of the week was 33 under the March futures contract. March 2019 soybean futures closed at $9.21, up 26 cents since last Friday. For the week, March 2019 soybean futures traded between $8.92 and $9.22. March soybean-to-corn price ratio was 2.40 at the end of the week. May 2019 soybean futures closed at $9.34, up 26 cents since last Friday. Mar/May and Mar/Nov future spreads were 13 and 36 cents, respectively.
In Tennessee, October/November 2019 soybean cash contracts average $9.11 with a range of $8.73 to $9.29. November 2019 soybean futures closed at $9.57, up 22 cents since last Friday. Downside price protection could be achieved by purchasing a $9.60 November 2019 Put Option which would cost 50 cents and set a $9.10 futures floor. Nov/Dec 2019 soybean-to-corn price ratio was 2.37 at the end of the week.
Cotton
Delta upland cotton spot price quotes for January 3 were 68.08 cents/lb (41-4-34) and 69.83 cents/lb (31-3-35). March 2019 cotton futures closed at 72.52, up 0.33 cents since last Friday. For the week, March 2019 cotton futures traded between 70.65 and 73.37 cents. Mar/May and Mar/Dec cotton futures spreads were 1.42 cents and 1.32 cents. May 2019 cotton futures closed at 73.94, up 0.45 cents since last Friday.
December 2019 cotton futures closed at 73.84, up 0.61 cents since last Friday. Downside price protection could be obtained by purchasing a 74 cent December 2019 Put Option costing 5.28 cents establishing a 68.72 cent futures floor.
Wheat
March 2019 wheat futures closed at $5.17, up 6 cents since last Friday. March 2019 wheat futures traded between $5.01 and $5.18 this week. March wheat-to-corn price ratio was 1.35. Mar/May and Mar/Jul future spreads were 5 cents and 12 cents. May 2019 wheat futures closed at $5.22, up 4 cents since last Friday.
In Tennessee, June/July 2019 wheat cash contracts ranged from $5.05 to $5.44 for the week. July 2019 wheat futures closed at $5.29, up 3 cents since last Friday. Downside price protection could be obtained by purchasing a $5.30 July 2019 Put Option costing 28 cents establishing a $5.02 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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