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Good Global Growing Conditions, Large Projected Stocks Keep Prices Depressed
DR. AARON SMITH
KNOXVILLE, TENN.
Trade continues to dominate market discussion, however, so far in 2019, good global growing conditions and large projected global stocks of corn, soybeans, and wheat have also been responsible for keeping prices depressed.
Corn growing conditions in South America continue to point towards excellent yields. Over the last ten years, Brazil’s second crop has overtaken the first crop as the dominant growing season for corn production. This provides export competition for the U.S. corn crop. Domestically, excessively wet conditions have delayed corn planting, however given the ability to plant a significant amount of acreage in a short window (due to increased planter size and capacity) and improved genetics, markets have yet to pro-vide any major signs of concern that yields/acreage will be adversely affected. Due to favorable growing conditions expectations of reduced global and U.S. stocks have been tapered.
Soybean production estimates in Argentina and Brazil continue to be increased. Growing conditions were very good and average yields / production will be near all-time highs. South American production will continue being the dominant source of soybeans to China as long as Chinese tariffs on U.S. soybeans remain in place. Recent Chinese purchases will have a very limited affect in absence of a resolution to the U.S.-China trade dispute. Wet planting conditions in the U.S. this spring could increase domestic acre-age, however it is still too early to make definitive claims of significant acreage shifts.
Wheat conditions across Europe, Russia, Ukraine, China, and India have been very favorable in early 2019, increasing the expectation of greater production. Domestically, although winter wheat planted acreage is estimated at 31.5 million acres, the lowest since 1909, favorable moisture conditions in the Southern Plains should increase yields and offset acreage reductions. The only significant problems have been excessively wet conditions in the Northern Plains, the Corn Belt, and the Mid-South, however this represents a small percentage of the U.S. winter wheat crop. If wet conditions persist in the Northern Plains it could reduce spring wheat acres, however given large global stocks and overall good global growing conditions in key wheat producing regions continued low prices should be expected.
Cotton continues to run counter to grains and oilseeds, at least so far in 2019. Global stocks have been decreased in three of the past four years and are now projected at 76.4 million bales down from the high in 2014/15 of 106.9 million bales. Reduced U.S. planted acreage estimates have been beneficial for prices. The trade dispute with China continues to be a significant hurtle providing uncertainty but exports of U.S. cotton have remained strong.
Corn
Ethanol production for the week ending April 12 was 1.016 million barrels per day, up 14,000 from the previous week. Ethanol stocks were 22.676 million barrels, down 517,000 barrels. Corn net sales reported by exporters from April 5-11 were up from last week at 37.3 million bushels for the 2018/19 marketing year and 0.7 million bushels for the 2019/20 marketing year. Exports for the same time period were up 25 percent from last week at 48.2 million bushels. Corn export sales and commitments were 76 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 85 percent. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened at Memphis, Northwest Barge Points, and Northwest Tennessee and weakened at Upper-middle Tennessee. Overall, basis for the week ranged from 10 under to 18 over with an average of 6 over the May futures at the end of the week. May 2019 corn futures closed at $3.58, down 3 cents since last Friday. For the week, May 2019 corn futures traded between $3.56 and $3.64. July 2019 corn futures closed at $3.67, down 2 cents since last Friday. May/Jul and May/Dec future spreads were 9 and 28 cents.
Nationally, the Crop Progress report estimated corn planted at 3 percent compared to 2 percent last week, 3 percent last year, and a 5-year average of 5 percent. In Tennessee, the Crop Progress report estimated corn planted at 16 percent compared to 8 percent last week, 10 percent last year, and a 5-year average of 14 percent and corn emerged at 2 percent compared to 0 percent last year and a 5-year average of 0 percent. In Tennessee, September 2019 corn cash forward contracts averaged $3.65 with a range of $3.48 to $3.78. December 2019 corn futures closed at $3.86, down 3 cents since last Friday. Downside price protection could be obtained by purchasing a $3.90 December 2019 Put Option costing 25 cents establishing a $3.65 futures floor.
Soybeans
Net sales reported by exporters were up compared to last week at 14.0 million bushels for the 2018/19 marketing year and 0.8 million bushels for the 2019/20 marketing year. Exports for the same period were down 47 percent compared to last week at 17.3 million bushels. Soybean export sales and commitments were 87 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 95 percent. Average soybean basis strengthened at Memphis, Northwest Barge Points, Northwest, and Upper-middle Tennessee. Basis ranged from 51 under to 3 over the May futures contract at elevators and barge points. Average basis at the end of the week was 24 under the May futures contract. May 2019 soybean futures closed at $8.88, down 15 cents since last Friday. For the week, May 2019 soybean futures traded between $8.76 and $9.02.
May soybean-to-corn price ratio was 2.46 at the end of the week. July 2019 soybean futures closed at $8.94, down 14 cents since last Friday. May/Jul and May/Nov future spreads were 14 and 33 cents.
In Tennessee, October/November 2019 soybean cash contracts average $8.85 with a range of $8.48 to $9.17. November 2019 soybean futures closed at $9.13, down 14 cents since last Friday. Downside price protection could be achieved by purchasing a $9.20 November 2019 Put Option which would cost 44 cents and set an $8.76 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 down compared to last week at 217,600 bales for the 2018/19 marketing year and 20,600 bales for the 2019/20 marketing year. Exports for the same time period were down 11 percent compared to last week at 340,000 bales. Upland cotton export sales were 96 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 96 percent. Delta upland cotton spot price quotes for April 17 were 74.46 cents/lb (41-4-34) and 76.21 cents/lb (31-3-35). Adjusted World Price (AWP) increased 0.99 cents to 69.21 cents. May 2019 cotton futures closed at 77.31, down 0.8 cents since last Friday. For the week, May 2019 cotton futures traded between 75.7 and 78.44 cents. May/Jul and May/Dec cotton futures spreads were 0.96 cents and -0.26 cents. July 2019 cotton futures closed at 78.27, down 0.59 cents since last Friday.
Nationally, the Crop Progress report estimated cotton planted at 7 percent compared to 6 percent last week, 8 percent last year, and a 5-year average of 7 percent. December 2019 cotton futures closed at 77.05, down 0.14 cents since last Friday. Downside price protection could be obtained by purchasing a 78 cent December 2019 Put Option costing 4.41 cents establishing a 73.59 cent futures floor.
Wheat
Wheat net sales reported by exporters were up compared to last week at 11.7 million bushels for the 2018/19 marketing year and 8.4 million bushels for the 2019/20 marketing year. Exports for the same time period were down 15 percent from last week at 18.4 million bushels. Wheat export sales were 97 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 103 percent. May 2019 wheat futures closed at $4.44, down 20 cents since last Friday. May 2019 wheat futures traded between $4.39 and $4.64 this week. May wheat-to-corn price ratio was 1.24. May/Jul and May/Sep future spreads were 4 cents and 10 cents.
Nationally, the Crop Progress report estimated winter wheat condition at 60 percent good-to-excellent and 9 percent poor-to-very-poor; winter wheat headed at 6 percent compared to 3 percent last week, 8 percent last year, and a 5-year average of 9 percent; and spring wheat planted at 2 percent compared to 1 percent last week, 3 percent last year, and a 5-year average of 13 percent . In Tennessee, winter wheat condition was estimated at 59 percent good-to-excellent and 8 percent poor-to-very poor; winter wheat jointing at 75 percent compared to 48 percent last week, 81 percent last year, and a 5-year average of 63 percent; and winter wheat headed at 5 percent compared to 0 percent last week, 5 percent last year, and a 5-year average of 7 percent. In Tennessee, June/July 2019 wheat cash contracts ranged from $4.38 to $4.88 for the week. July 2019 wheat futures closed at $4.48, down 20 cents since last Friday. Downside price protection could be obtained by purchasing a $4.50 July 2019 Put Option costing 17 cents establishing a $4.33 futures floor. September 2019 wheat futures closed at $4.54, down 21 cents since last Friday. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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