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Many Factors Contribute To Dip In Cash, Futures Prices
DR. AARON SMITH
KNOXVILLE, TENN.
Currently, bearish news continues to dominate corn, soybean, and wheat markets, pushing cash and futures prices lower. Stocks, trade/exports, African Swine Fever, global weather, South American production, U.S. soil moisture, and large short positions by managed money funds are some of the current factors leading to the bearish sentiment.
Stocks of corn, soybeans, and wheat are large both domestically and globally. Currently, the USDA estimates 2018/19 marketing year ending U.S. (global) stocks at 2.035 billion bushels (12.362 billion) of corn, 895 million bushels (3.945 billion) of soybeans, and 1.087 billion (10.127 billion) bushels of wheat. Stocks are abundant and will take time to work through.
Trade and exports have been discussed frequently this winter and spring. Trade is crucial to agriculture with approximately 25 percent of farm and ranch products sent to foreign destinations. With the Chinese trade disruption and USMCA (NAFTA’s replacement) still not finalized, substantial bearish sentiment for trade persists. Further complicating trade is the likelihood of reduced total Chinese soybean imports, due to African Swine Fever. Reduced imports to China could reduce soybean exports from Brazil and Argentina causing additional soybeans to be made available to an already oversupplied global market.
As mentioned last week, global weather across multiple growing regions has been very supportive for increased production and hence bearish for prices. This can change rapidly and almost certainly will before the end of the year, but at present few red flags have emerged in 2019. In the U.S. there have been challenges with a wet winter and spring restricting planting pace, but as of right now the abundant soil moisture can be seen a positive for yields, assuming the crop is able to be planted.
Managed money funds – as reported by the CFTC –COT report, have amassed a large net short position corn 370,000+ contracts, soybeans 125,000+, and wheat 65,000+ contracts. This build contributes to the bearish sentiment however these positions will need to unwind providing some hope that fund movement could trigger a rally – eventually.
Corn
Ethanol production for the week ending April 19 was 1.048 million barrels per day, up 32,000 from the previous week. Ethanol stocks were 22.747 million barrels, up 71,000 barrels. Corn net sales reported by exporters from April 12-18 were down from last week at 30.7 million bushels for the 2018/19 marketing year and 0.1 million bushels for the 2019/20 marketing year. Exports for the same time period were up 2 percent from last week at 49.2 million bushels. Corn export sales and commitments were 78 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 87 percent. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened at Memphis, Northwest Barge Points, Northwest, and Upper-middle Tennessee. Overall, basis for the week ranged from 2 under to 20 over with an average of 8 over the May futures at the end of the week. May 2019 corn futures closed at $3.51, down 7 cents since last Friday. For the week, May 2019 corn futures traded between $3.42 and $3.59. July 2019 corn futures closed at $3.61, down 6 cents since last Friday. May/Jul and May/Dec future spreads were 10 and 29 cents.
Nationally, the Crop Progress report estimated corn planted at 6 percent compared to 3 percent last week, 5 percent last year, and a 5-year average of 12 percent. In Tennessee, the Crop Progress report estimated corn planted at 24 percent compared to 16 percent last week, 27 percent last year, and a 5-year average of 30 percent; and corn emerged at 9 percent compared to 2 percent last week, 1 percent last year, and a 5-year average of 5 percent. In Tennessee, September 2019 corn cash forward contracts averaged $3.56 with a range of $3.35 to $3.74. December 2019 corn futures closed at $3.80, down 6 cents since last Friday. Downside price protection could be obtained by purchasing a $3.90 December 2019 Put Option costing 29 cents establishing a $3.61 futures floor.
Soybeans
Net sales reported by exporters were up compared to last week at 21.9 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 16 percent compared to last week at 14.6 million bushels. Soybean export sales and commitments were 88 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 96 percent. Average soybean basis strengthened at Memphis, Northwest Barge Points, and Northwest Tennessee and weakened at Upper-middle Tennessee. Basis ranged from 45 under to 1 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 $8.53, down 27 cents since last Friday. For the week, May 2019 soybean futures traded be-tween $8.52 and $8.83. May soybean-to-corn price ratio was 2.43 at the end of the week. July 2019 soybean futures closed at $8.67, down 27 cents since last Friday. May/Jul and May/Nov future spreads were 14 and 34 cents.
Nationally, the Crop Progress report estimated soybeans planted at 1 percent compared to 2 percent last year and a 5-year average of 2 percent. In Tennessee, the Crop Progress report estimated soybeans planted at 1 percent compared to 1 percent last year and a 5-year average of 1 percent. In Tennessee, October/November 2019 soybean cash contracts average $8.60 with a range of $8.26 to $8.97. November 2019 soy-bean futures closed at $8.87, down 26 cents since last Friday. Downside price protection could be achieved by purchasing a $9.00 November 2019 Put Option which would cost 48 cents and set an $8.52 futures floor. Nov/Dec 2019 soybean-to-corn price ratio was 2.33 at the end of the week.
Cotton
Net sales reported by exporters were up compared to last week at 239,000 bales for the 2018/19 marketing year and 48,900 bales for the 2019/20 marketing year. Exports for the same time period were down 7 percent compared to last week at 318,000 bales. Upland cotton export sales were 98 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 97 percent. Delta upland cotton spot price quotes for April 25 were 75.07 cents/lb (41-4-34) and 75.57 cents/lb (31-3-35). Adjusted World Price (AWP) decreased 0.20 cents to 68.68 cents. May 2019 cotton futures closed at 76.75, down 0.56 cents since last Friday. For the week, May 2019 cotton futures traded between 75.77 and 77.86 cents. May/Jul and May/Dec cotton futures spreads were 0.95 cents and -0.56 cents. July 2019 cotton futures closed at 77.7, down 0.57 cents since last Friday.
Nationally, the Crop Progress report estimated cotton planted at 9 percent compared to 7 percent last week, 10 percent last year, and a 5-year average of 9 percent. In Tennessee, the Crop Progress report estimated cotton planted at 1 percent compared to 0 percent last week, 0 percent last year, and a 5-year average of 1 percent. December 2019 cotton futures closed at 76.19, down 0.86 cents since last Friday. Downside price protection could be obtained by purchasing a 77 cent December 2019 Put Option costing 4.32 cents establishing a 72.68 cent futures floor.
Wheat
Wheat net sales reported by exporters were up compared to last week at 15.6 million bushels for the 2018/19 marketing year and 8.3 million bushels for the 2019/20 marketing year. Exports for the same time period were up 59 percent from last week at 29.1 million bushels.
Wheat export sales were 99 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 104 percent. May 2019 wheat futures closed at $4.35, down 9 cents since last Friday. May 2019 wheat futures traded between $4.28 and $4.44 this week. May wheat-to-corn price ratio was 1.24. May/Jul and May/Sep future spreads were 7 cents and 15 cents.
Nationally, the Crop Progress report estimated winter wheat condition at 62 percent good-to-excellent and 8 percent poor-to-very-poor; winter wheat headed at 9 percent compared to 6 percent last week, 12 percent last year, and a 5-year average of 18 percent; and spring wheat planted at 5 percent compared to 2 percent last week, 3 percent last year, and a 5-year average of 22 percent. In Tennessee, winter wheat condition was estimated at 62 percent good-to-excellent and 8 percent poor-to-very poor; winter wheat jointing at 87 percent compared to 78 percent last week, 88 percent last year, and a 5-year average of 78 percent; and winter wheat headed at 21 percent compared to 5 percent last week, 9 percent last year, and a 5-year average of 17 percent. In Tennessee, June/July 2019 wheat cash contracts ranged from $4.28 to $4.72 for the week. July 2019 wheat futures closed at $4.42, down 6 cents since last Friday. Downside price protection could be obtained by purchasing a $4.50 July 2019 Put Option costing 21 cents establishing a $4.29 futures floor. September 2019 wheat futures closed at $4.50, down 4 cents since last Friday. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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