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Markets Stalled As Government Awaits Feb. 15 Deadline
DR. AARON SMITH
KNOXVILLE, TENN.
On Friday, President Trump announced that a temporary deal to end the partial government shutdown had been reached. The temporary measure would fund the federal government to February 15. While this is welcome news to those affected by the shutdown, a long term solution, and the certainty it would afford government agencies and citizens, remains undefined. From an agricultural stand point, resumption of USDA reports (Export Sales, WASDE, Grain Stocks etc.), the ability of FSA to process loans and guarantees, and the implementation of the 2018 Farm Bill will resume (perhaps temporarily). Uncertainty remains beyond the February 15 deadline so markets will continue to wait for additional information.
December 2019 corn futures continue to trade in a 10 cent range $3.95 to $4.05. Limited movement has occurred outside this range since late November. New information contained in the Grain Stocks and WASDE reports or progress in trade talks have the potential to jolt the market outside of this range in either direction. Until then markets will continue to move sideways.
November soybeans have slowly ascended from mid-September lows. On September 18, the November soybean contract traded as low as $8.79 ¼. Today, November soybeans closed at $9.64 ¼, an 85 cent gain. Dry weather in parts of Brazil and optimism regarding export sales to China has fueled the five month rally. Given the current trajectory new six month highs could occur in the next three weeks.
December cotton has come off the early January low of 72.24, closing on Friday at 74.43 cents. December 2019 cotton futures prices are well below the highs from last summer (80-84 cents), however given the uncertainty regarding long-term price prospects, securing a price or reducing downside risk may be a prudent risk management decision.
July wheat futures continue to trade in a 30 cent price range ($5.20 to $5.50). Prices are well above last year’s prices at this time of year but well below prices available before planting when July 2019 futures were over $6.00.
Corn
Ethanol production for the week ending January 18 was 1.031 million barrels per day, down 20,000 from the previous week. Ethanol stocks were 23.501 million barrels, up 150,000 barrels. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis, Northwest Barge Points, Northwest, and Upper-middle Tennessee. Overall, basis for the week ranged from 15 under to 8 over the March futures contract with an average of even the March futures at the end of the week. March 2019 corn futures closed at $3.80 down 1 cent since last Friday. For the week, March 2019 corn futures traded between $3.75 and $3.82. May 2019 corn futures closed at $3.88, down 2 cents since last Friday. Mar/May and Mar/Dec future spreads were 8 and 23 cents.
In Tennessee, September 2019 corn cash forward contracts averaged $3.88 with a range of $3.77 to $4.02. 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 30 cents establishing a $3.80 futures floor.
Soybeans
Average soybean basis strengthened at Northwest Barge Points, Memphis, Northwest, and Upper-middle Tennessee. Basis ranged from 61 under to 21 under the March futures contract at elevators and barge points. Average basis at the end of the week was 34 under the March futures contract. March 2019 soybean futures closed at $9.25, up 9 cents since last Friday. For the week, March 2019 soybean futures traded between $8.99 and $9.26. March soybean-to-corn price ratio was 2.43 at the end of the week. May 2019 soybean futures closed at $9.39, up 9 cents since last Friday. Mar/May and Mar/Nov future spreads were 14 and 39 cents.
In Tennessee, October/November 2019 soybean cash contracts average $9.17 with a range of $8.88 to $9.35. November 2019 soybean futures closed at $9.64, up 9 cents since last Friday. Downside price protection could be achieved by purchasing a $9.80 November 2019 Put Option which would cost 61 cents and set a $9.19 futures floor. Nov/Dec 2019 soybean-to-corn price ratio was 2.39 at the end of the week.
Cotton
Delta upland cotton spot price quotes for January 24 were 70.39 cents/lb (41-4-34) and 72.14 cents/lb (31-3-35). March 2019 cotton futures closed at 74.13, up 0.24 cents since last Friday. For the week, March 2019 cotton futures traded between 72.75 and 74.29 cents. Mar/May and Mar/Dec cotton futures spreads were 1.44 cents and 0.30 cents. May 2019 cotton futures closed at 75.57, up 0.25 cents since last Friday.
December 2019 cotton futures closed at 74.43, down 0.34 cents since last Friday. Downside price protection could be obtained by purchasing a 75 cent December 2019 Put Option costing 4.8 cents establishing a 70.2 cent futures floor.
Wheat
March 2019 wheat futures closed at $5.20, up 3 cents since last Friday. March 2019 wheat futures traded between $5.14 and $5.29 this week. March wheat-to-corn price ratio was 1.37. Mar/May and Mar/Jul future spreads were 7 cents and 13 cents. May 2019 wheat futures closed at $5.27, up 4 cents since last Friday.
In Tennessee, June/July 2019 wheat cash contracts ranged from $5.18 to $5.65 for the week. July 2019 wheat futures closed at $5.33, up 5 cents since last Friday. Downside price protection could be obtained by purchasing a $5.40 July 2019 Put Option costing 33 cents establishing a $5.07 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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