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Dominant Factor Right Now In Corn Markets Is Uncertainty
DR. AARON SMITH
KNOXVILLE, TENN.
Right now uncertainty is a dominant factor in corn markets. Prevented corn planting across parts of Indiana, Illinois, Ohio, Iowa, Minnesota, South Dakota, and Nebraska could cause substantial reductions in corn acres, if prevented planting crop insurance claims are taken. Current estimates have between 2 and 8 million acres of corn that may take prevented planting claims (higher corn prices will likely lower the upper end of this estimate). This is a huge variable when determining potential U.S. production and price prospects for the remaining unpriced 2018 crop and the 2019 crop. For a point of reference, USDA FSA indicated in 2013 there were approximately 3.6 million acres that were prevented from being planted – the current largest for a planting season dating back to 2007.
An additional concern, due to challenging planting conditions, is the potential yield drag that could occur. In past wet planting seasons, which resulted in delayed planting, yields suffered by approximately 5-15 percent compared to the trend line predication. Two complicating factors are: 1) weather through the remainder of the growing season will also be important for final yields; and 2) the genetics that are embedded in corn seed are very different compared to past year’s observations. Will the genetics help curtail expected yield loss and by how much?
Current domestic and trade policy only adds to the uncertainty. There appears to be no forthcoming resolution to the trade dispute with China and rhetoric has been ratcheted up with Mexico. The President proposed tariffs on Mexico if Mexico does not cease the flow of illegal migrants. Any tariffs imposed on Mexico would likely be met with retaliatory tariffs on US agricultural exports – Mexico is the largest importer of US corn. The trade mitigation payments (MFP payments) also could skew planted acres, as acres must be planted to an eligible crop in order to obtain a currently undetermined county payment rate. Lastly, the recent passage of the disaster relief Bill by congress will provide over $3 billion for farm related losses to agricultural producers through the Wildfire & Hurricane Indemnity Program (WHIP). When combining all of the moving parts above with the huge amount of uncertainty embedded in each component it is a monumental task to determine a clear path forward for producer decisions.
This week’s numbers are as of the close of business Thursday June 6.
Corn
Ethanol production for the week ending May 31 was 1.044 million barrels per day, down 13,000 from the previous week. Ethanol stocks were 22.553 million barrels, down 71,000 barrels. Corn net sales reported by exporters for May 24-30 were down from last week with net sales cancellations of 0.3 million bushels for the 2018/19 marketing year and net sales of 30.3 million bushels for the 2019/20 marketing year. Exports for the same time period were down 55 percent from last week at 30.3 million bushels. Corn export sales and commitments were 83 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. 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 8 under to 35 over with an average of 9 over the July futures at elevators and barge points. July 2019 corn futures closed at $4.20, down 7 cents since last Friday. For the week, July 2019 corn futures traded between $4.07 and $4.36. Jul/Sep and Jul/Dec future spreads were 9 and 18 cents.
Nationally, the Crop Progress report estimated corn planted at 67 percent compared to 58 percent last week, 96 percent last year, and a 5-year average of 96 percent; and corn emerged at 46 percent compared to 32 percent last week, 84 percent last year, and a 5-year average of 84 percent. In Tennessee, the Crop Progress report estimated corn condition at 72 percent good-to-excellent and 4 percent poor-to-very poor; corn planted at 95 percent compared to 93 percent last week, 98 percent last year, and a 5-year average of 98 percent; corn emerged at 88 percent compared to 81 percent last week, 94 percent last year, and a 5-year average of 94 percent; and corn silking at 1 percent. In Tennessee, September 2019 corn cash forward contracts averaged $4.20 with a range of $3.92 to $4.32. September 2019 corn futures closed at $4.29, down 7 cents since last Friday. December 2019 corn futures closed at $4.38, down 5 cents since last Friday. Downside price protection could be obtained by purchasing a $4.40 December 2019 Put Option costing 34 cents establishing a $4.06 futures floor.
Soybeans
Net sales reported by exporters were up compared to last week with net sales of 18.7 million bushels for the 2018/19 marketing year and 2.7 million bushels for the 2019/20 marketing year. Exports for the same period were up 37 percent compared to last week at 20.8 million bushels. Soybean export sales and commitments were 97 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 99 percent. Average soybean basis strengthened at Memphis and Northwest Barge Points and weakened at Northwest and Upper-middle Tennessee. Basis ranged from 46 under to 20 over the July futures contract at elevators and barge points. Average basis at the end of the week was 7 under the July futures contract. July 2019 soybean futures closed at $8.68, down 9 cents since last Friday. For the week, July 2019 soybean futures traded between $8.57 and $8.94. July soybean-to-corn price ratio was 2.07 at the end of the week. August 2019 soybean futures closed at $8.75, down 9 cents since last Friday. Jul/Aug and Jul/Nov future spreads were 7 and 27 cents.
Nationally, the Crop Progress report estimated soybeans planted at 39 percent compared to 29 percent last week, 86 percent last year, and a 5-year average of 79 percent; and soybeans emerged at 19 percent compared to 11 percent last week, 65 percent last year, and a 5-year average of 56 percent. In Tennessee, the Crop Progress report estimated soybean condition at 76 percent good-to-excellent and 4 percent poor-to-very poor; soybeans planted at 64 percent compared to 49 percent last week, 68 percent last year, and a 5-year average of 60 percent; and soybeans emerged at 43 percent compared to 28 percent last week, 47 percent last year, and a 5-year average of 40 percent. In Tennessee, October/November 2019 soybean cash contracts average $8.63 with a range of $8.32 to $8.84. November 2019 soybean futures closed at $8.95, down 9 cents since last Friday. Downside price protection could be achieved by purchasing a $9.00 November 2019 Put Option which would cost 47 cents and set an $8.53 futures floor. Nov/Dec 2019 soybean-to-corn price ratio was 2.04 at the end of the week.
Cotton
Net sales reported by exporters were down compared to last week at 182,300 bales for the 2018/19 marketing year and 51,600 bales for the 2019/20 marketing year. Exports for the same time period were down 25 percent compared to last week at 308,600 bales. Upland cotton export sales were 110 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 103 percent. Delta upland cotton spot price quotes for June 6 were 64.84 cents/lb (41-4-34) and 67.09 cents/lb (31-3-35). Adjusted World Price (AWP) increased 0.2 cents to 61.51 cents. July 2019 cotton futures closed at 68.59, up 0.51 cents since last Friday. For the week, July 2019 cotton futures traded between 66.9 and 69.91 cents. Jul/Dec and Jul/Mar cotton futures spreads were -1.92 cents and -1.18 cents.
Nationally, the Crop Progress report estimated cotton condition at 46 percent good-to-excellent and 13 percent poor-to-very poor; cotton planted at 71 percent compared to 57 percent last week, 74 percent last year, and a 5-year average of 72 percent and cotton squaring at 8 percent compared to 9 percent last year and a 5-year average of 7 percent. In Tennessee, the Crop Progress report estimated cotton condition at 66 percent good-to-excellent and 10 percent poor-to-very poor; cotton planted at 91 percent compared to 75 percent last week, 92 percent last year, and a 5-year average of 92 percent; and cotton squaring at 4 percent compared to 2 percent last week, 4 percent last year, and a 5-year average of 4 percent. December 2019 cotton futures closed at 66.67, down 0.4 cents since last Friday. Downside price protection could be obtained by purchasing a 67 cent December 2019 Put Option costing 3.66 cents establishing a 63.34 cent futures floor. March 2020 cotton futures closed at 67.41, down 0.33 cents since last Friday.
Wheat
Wheat net sales reported by exporters were down compared to last week with net sales cancellations of 1.0 million bushels for the 2018/19 marketing year and net sales of 18.4 million bushels for the 2019/20 marketing year. Exports for the same time period were up 72 percent from last week at 27.5 million bushels. Wheat export sales were 103 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 106 percent. Nationally, the Crop Progress report estimated winter wheat condition at 64 percent good-to-excellent and 9 percent poor-to-very-poor; winter wheat headed at 76 percent compared to 66 percent last week, 82 percent last year, and a 5-year average of 84 percent; spring wheat condition at 83 percent good-to-excellent and 1 percent poor-to-very poor; spring wheat planted at 93 percent compared to 84 percent last week, 96 percent last year, and a 5-year average of 96 percent; and spring wheat emerged at 69 percent compared to 47 percent last week, 78 percent last year, and a 5-year average of 84 percent. In Tennessee, winter wheat condition was estimated at 63 percent good-to-excellent and 8 percent poor-to-very poor; winter wheat coloring at 86 percent compared to 63 percent last week, 89 percent last year, and a 5-year average of 80 percent; and winter wheat harvested at 3 percent. In Tennessee, June/July 2019 wheat cash contracts ranged from $4.81 to $5.60 for the week. July 2019 wheat futures closed at $5.10, up 7 cents since last Friday. July 2019 wheat futures traded between $4.87 and $5.29 this week. July wheat-to-corn price ratio was 1.21. Jul/Sep and Jul/Jul future spreads were 4 and 35 cents.
September 2019 wheat futures closed at $5.14, up 5 cents since last Friday. July 2020 wheat futures closed at $5.45, up 7 cents since last Friday. Downside price protection could be obtained by purchasing a $5.50 July 2020 Put Option costing 45 cents establishing a $5.05 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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