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Much Uncertainty About Trade Clouds Producer Decisions
DR. AARON SMITH
KNOXVILLE, TENN.
It was a rough start to the week for corn, soybean, and cotton prices. Wheat prices tailed off at the end of the week due to lower prices from export competition with Russia and France. 2019 corn harvest futures prices continue to trade in a tight 10 cent range, $3.95 to $4.05. At the end of the week, corn futures were right in the middle of the range. Expect corn futures prices to move sideways with trade, South American weather, and U.S. planting intentions providing the potential to push prices out of the range. 2019 harvest soybean futures have started to plateau, moving sideways the past month and a half. Trade news between China will likely jolt the market lower or higher before the end of the month. Mixed soybean production reports for Argentina (up) and Brazil (down) provide potential offsets to current estimates. On Monday and Tuesday, December cotton futures dropped near-ly 2 cents and then moved sideways for the rest of the week.
Trade talks between the U.S. and China are scheduled to continue next week. There was talk this week of President Trump providing a 60-day extension of the March 1 deadline for increased tariffs on Chinese goods. A 60-day extension would carry negotiations and uncertainty well into the planting season. The large amount of uncertainty regarding trade with China complicates producers’ decisions to plant soybeans, cotton, or corn. Price expectation is one factor producers should consider, but in these uncertain times adhering to a crop rotation and/or planting a mix of the three crops may be the best course of action.
Corn
Ethanol production for the week ending February 8 was 1.029 million barrels per day, up 62,000 from the previous week. Ethanol stocks were 23.466 million barrels, down 481,000 barrels. Corn net sales reported by exporters from December 28 to January 3 were down from the previous week with net sales of 22.5 million bushels for the 2018/19 marketing year. Exports for the same time period were down 34 percent compared to the previous week at 26.2 million bushels. Corn export sales and commitments were 52 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 55 percent. 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 8 under to 18 over the March futures contract with an average of 7 over the March futures at the end of the week. March 2019 corn futures closed at $3.74 unchanged since last Friday. For the week, March 2019 corn futures traded between $3.71 and $3.79. May 2019 corn futures closed at $3.82, unchanged since last Friday. Mar/May and Mar/Dec future spreads were 8 and 25 cents.
In Tennessee, September 2019 corn cash forward contracts averaged $3.85 with a range of $3.62 to $3.99. December 2019 corn futures closed at $3.99, unchanged since last Friday. Downside price protection could be obtained by purchasing a $4.00 December 2019 Put Option costing 24 cents establishing a $3.76 futures floor.
Soybeans
Net sales reported by exporters were down from the previous week with net sales reductions of 22.5 million bushels for the 2018/19 marketing year and net sales of 0.04 million bushels for the 2019/20 marketing year. Exports for the same period were down 1 percent compared to the previous week at 33.4 million bushels. Soybean export sales and commitments were 59 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 81 percent. Average soybean basis strengthened or remained unchanged at Northwest Barge Points, Memphis, Northwest, and Upper-middle Tennessee. Basis ranged from 55 under to 14 under the March futures contract at elevators and barge points. Average basis at the end of the week was 28 under the March futures contract. March 2019 soybean futures closed at $9.07, down 7 cents since last Friday.
For the week, March 2019 soybean futures traded between $9.01 and $9.20. March soybean-to-corn price ratio was 2.43 at the end of the week. May 2019 soybean futures closed at $9.21, down 7 cents since last Friday. Mar/May and Mar/Nov future spreads were 14 and 45 cents.
In Tennessee, October/November 2019 soybean cash contracts average $9.11 with a range of $8.79 to $9.32. November 2019 soybean futures closed at $9.52, down 5 cents since last Friday. Downside price protection could be achieved by purchasing a $9.60 November 2019 Put Option which would cost 54 cents and set a $9.06 futures floor. Nov/Dec 2019 soybean-to-corn price ratio was 2.39 at the end of the week.
Cotton
Net sales reported by exporters were up from the previous week with net sales of 299,800 bales for the 2018/19 marketing year and 19,400 bales for the 2019/20 marketing year. Exports for the same time period were 181,100 bales, down 5 percent from last week. Upland cotton export sales were 78 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 69 percent. Delta upland cotton spot price quotes for February 14 were 67.21 cents/lb (41-4-34) and 68.96 cents/lb (31-3-35). Adjusted World Price (AWP) decreased 2.34 cents to 62.27 cents. March 2019 cotton futures closed at 70.22, down 2.33 cents since last Friday. For the week, March 2019 cotton futures traded between 69.53 and 72.71 cents. Mar/May and Mar/Dec cotton futures spreads were 1.64 cents and 2.58 cents. May 2019 cotton futures closed at 71.86, down 1.83 cents since last Friday.
December 2019 cotton futures closed at 72.8, down 1.13 cents since last Friday. Downside price protection could be obtained by purchasing a 73 cent December 2019 Put Option costing 4.28 cents establishing a 68.72 cent futures floor.
Wheat
Wheat net sales reported by exporters were down from the previous week with net sales of 4.8 million bushels for the 2018/19 marketing year and 1.1 million bushels for the 2019/20 marketing year. Exports for the week were down 33 percent compared to the previous week at 10.7 million bushels. Wheat export sales were 66 percent of the USDA estimated total annual exports for the 2018/19 mar-keting year (June 1 to May 31), compared to a 5-year average of 83 percent. March 2019 wheat futures closed at $5.04, down 13 cents since last Friday. March 2019 wheat futures traded between $4.99 and $5.24 this week. March wheat-to-corn price ratio was 1.35. Mar/May and Mar/Jul future spreads were 3 cents and 5 cents. May 2019 wheat futures closed at $5.07, down 12 cents since last Friday.
In Tennessee, June/July 2019 wheat cash contracts ranged from $5.03 to $5.53 for the week. July 2019 wheat futures closed at $5.09, down 13 cents since last Friday. Downside price protection could be obtained by purchasing a $5.10 July 2019 Put Option costing 26 cents establishing a $4.84 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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