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More China Purchases Needed To Reach USDA Soybean Projections
DR. AARON SMITH
KNOXVILLE, TENN.
This week nearby contracts for corn ($3.61) and wheat ($4.27) set new six month contract lows before rallying mid-week to close up for the week – as at the close of business on Thursday. Marketing year exports continue to lag well behind the pace required to meet USDA 2018/19 marketing year export projections. Strong competition for export markets for wheat (Russia and the EU) and corn (Brazil and Ukraine) continue to persist. Stocks of wheat and corn are projected to reduce compared to the previous marketing year, however they remain near record large. Low global prices will continue to persist barring a weather event that constricts global grain production and further reduces stocks.
Soybean export purchases were up for the week ending March 1 as China purchased over 62 million bushels (just over 1 million MT) of soybeans. However, China purchases of 10+ million MTs purported to be part of ongoing trade negotiations have yet to matriculate. Without China purchasing large amounts of additional soybeans it is unlikely that US exports will reach the current USDA marketing year projection. Trade negotiations will continue to be at the forefront of price projections for soybeans. Global and U.S. stocks of soybeans have increased dramatically since 2013, so upside potential for price in 2019 should be limited until stocks can be reduced.
December cotton futures tested the lower bound of 72.25 cents on February 15, since then prices have appreciated and are trending toward a possible retest of the 75 cent level. At the beginning of the 2018/19 marketing year, cotton export sales and shipments were very robust resulting in dramatic price increases last summer and fall. Since then export sales have reduced and fallen behind the five year average pace required to meet the USDA’s marketing year projection.
The budget released by the White House earlier this week had a 15 percent decrease in proposed USDA spending for 2020. Proposed cuts to commodity programs (ARC/PLC) and crop insurance were substantial. The budget as presented is very unlikely to proceed through Congress, so most of these cuts will never be implemented. Given multiple years of low farm incomes and continued trade disruptions (that have disproportionately affected agriculture), strengthening not detracting from key risk management programs such as crop insurance and ARC/PLC should be a priority.
Today’s market numbers are as of close on Thursday March 14, 2019.
Corn
Ethanol production for the week ending March 8 was 1.005 million barrels per day, down 19,000 from the previous week. Ethanol stocks were 23.731 million barrels, down 530,000 barrels. Corn net sales reported by exporters from March 1-7 were down from last week at 14.6 million bushels for the 2018/19 marketing year and 18.7 million bushels for the 2019/20 marketing year. Exports for the same time period were down from last week at 30.9 million bushels. Corn export sales and commitments were 68 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 76 percent. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis, Northwest Barge Points, and Northwest Tennessee and weakened at Upper-middle Tennessee. Overall, basis for the week ranged from 7 under to 15 over with an average of 2 over the May futures at the end of the week. May 2019 corn futures closed at $3.70, up 6 cents since last Friday. For the week, May 2019 corn futures traded between $3.61 and $3.72. July 2019 corn futures closed at $3.79, up 6 cents since last Friday. May/Jul and May/Dec future spreads were 9 and 24 cents.
In Tennessee, September 2019 corn cash forward contracts averaged $3.71 with a range of $3.49 to $3.88. December 2019 corn futures closed at $3.94, down 6 cents since last Friday. Downside price protection could be obtained by purchasing a $4.00 December 2019 Put Option costing 29 cents establishing a $3.71 futures floor.
Soybeans
Net sales reported by exporters were up compared to last week at 70.3 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 compared to last week at 30.1 million bushels. Soybean export sales and commitments were 81 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 92 percent. Average soybean basis strengthened or remained unchanged at Memphis, Northwest Barge Points, and Northwest Tennessee and weakened at Upper-middle Tennessee. Basis ranged from 58 under to 5 under the May futures contract at elevators and barge points. Average basis at the end of the week was 29 under the May futures contract. May 2019 soybean futures closed at $8.98, up 3 cents since last Friday. For the week, May 2019 soy-bean futures traded between $8.87 and $9.06. May soybean-to-corn price ratio was 2.43 at the end of the week. July 2019 soybean futures closed at $9.12, up 6 cents since last Friday. May/Jul and May/Nov future spreads were 14 and 34 cents.
In Tennessee, October/November 2019 soybean cash contracts average $8.93 with a range of $8.62 to $9.21. November 2019 soy-bean futures closed at $9.32, up 2 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 2.37 at the end of the week.
Cotton
Net sales reported by exporters were up compared to last week at 166,100 bales for the 2018/19 marketing year and 23,100 bales for the 2019/20 marketing year. Exports for the same time period were down compared to last week at 287,000 bales. Upland cotton export sales were 88 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 89 percent. Delta upland cotton spot price quotes for March 14 were 69.8 cents/lb (41-4-34) and 71.55 cents/lb (31-3-35). Adjusted World Price (AWP) increased 0.68 cents to 64.1 cents. May 2019 cotton futures closed at 74.3, up 0.81 cents since last Friday. For the week, May 2019 cotton futures traded between 73.05 and 75.98 cents. May/Jul and May/Dec cotton futures spreads were 1.15 cents and -0.24 cents. July 2019 cotton futures closed at 75.45, up 0.82 cents since last Friday.
December 2019 cotton futures closed at 64.06, up 0.56 cents since last Friday. Downside price protection could be obtained by purchasing a 75 cent December 2019 Put Option costing 4.63 cents establishing a 70.37 cent futures floor.
Wheat
Wheat net sales reported by exporters were down compared to last week at 9.7 million bushels for the 2018/19 marketing year and 3.0 million bushels for the 2019/20 marketing year. Exports for the same time period were up from last week at 27.3 million bushels. Wheat export sales were 87 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 97 percent. May 2019 wheat futures closed at $4.52, up 13 cents since last Friday. May 2019 wheat futures traded between $4.27 and $4.60 this week. May wheat-to-corn price ratio was 1.22. May/Jul and May/Sep future spreads were 7 cents and 16 cents.
In Tennessee, June/July 2019 wheat cash contracts ranged from $4.27 to $4.86 for the week. July 2019 wheat futures closed at $4.59, up 12 cents since last Friday. Downside price protection could be obtained by purchasing a $4.60 July 2019 Put Option costing 24 cents establishing a $4.36 futures floor. September 2019 wheat futures closed at $4.68, up 11 cents since last Friday. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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