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A Component Of This Very Challenging Corn Planting Season Is The Likely Decrease In Yield
DR. AARON SMITH
KNOXVILLE, TENN.
In corn markets a lot of attention is being paid to projected planted acres. Currently, the USDA estimates corn planted acres at 89.8 million acres (June WASDE), resulting in 82.4 million acres projected to be harvested based on historic planted-to-harvested acreage ratios. The current projection is already down 3 million acres from the May estimate of 92.8 million acres planted. Additionally, it is very likely that planted acreage could be further decreased by 2-8 million acres due to major planting issues in Illinois, Indiana, and Ohio; considering the June 10 Crop Progress report indicates 83 percent of corn acres planted from the 18 largest corn producing states, which includes: Indiana – 67 percent planted, Illinois – 73 percent planted, and Ohio – 50 percent planted.
The final planting date for crop insurance has passed for corn and the late planting period, in these adversely affected areas, is quickly concluding (planting in the late planting period for crop insurance results in a 1 percent per day decline in insurance level). Weather permitting planting corn during or after the late planting period could still occur, however this is a very risky endeavor for producers and I would not expect substantial amounts of acres to be planted to corn during this time – a switch to soybeans or taking the prevented planting indemnity are the more likely options (the 2019 MFP payments complicate this decision for producers).
The less talked about component of this very challenging corn planting season is the likely decrease in yield. The USDA on the June WASDE report decreased national average yield to 166 bu/acre, down 10 bu/acre (5.7 percent yield reduction) from their May trendline projected yield. By comparison, the 3 million acres that were projected not to be planted by the USDA would result in reduced pro-duction of approximately 498 million bushels (3 million acres multiplied by 166 bu/acre). Whereas the 10 bu/acre overall yield reduction, on the currently assumed 82.4 million harvested acres, would be an 824 million bushel (82.4 multiplied by 10 bu/acre) reduction in production.
The reduced production potential for the 2019 crop have corn prices moving rapidly towards $5.00 (currently Dec corn is at $4.63) with several double digit gains in the futures market. Producers should still be cognizant of risk, there is still a great deal of uncertainty in these acreage estimates and yield projections. While it seems likely that prices will move higher in the short term or until further clarity on acreage and weather is provided, some sales or establishing a price floor is likely a prudent risk management decision. Locking in price protection at these profitable offerings on at least a portion of 2019 production should strongly be considered.
Details of the WASDE report for corn, soybeans, wheat and cotton can be found online at: https://ag.tennessee.edu/arec/Pages/MonthlyCropComments.aspx.
Corn
Ethanol production for the week ending June 7 was 1.096 million barrels per day, up 52,000 from the previous week. Ethanol stocks were 21.802 million barrels, down 751,000 barrels. Corn net sales reported by exporters for May 31-June 6 were up from last week with net sales of 6.6 million bushels for the 2018/19 marketing year and 3.7 million bushels for the 2019/20 marketing year. Exports for the same time period were up 15 percent from last week at 35.0 million bushels. Corn 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 96 percent. Across Tennessee, average corn basis (cash price-nearby futures price) weakened or remained unchanged at Memphis, Northwest Barge Points, Upper-middle, and Northwest Tennessee. Overall, basis for the week ranged from 2 under to 32 over with an average of 10 over the July futures at elevators and barge points. July 2019 corn futures closed at $4.53, up 38 cents since last Friday. For the week, July 2019 corn futures traded between $4.08 and $4.57. Jul/Sep and Jul/Dec future spreads were 5 and 10 cents.
Nationally, the Crop Progress report estimated corn condition at 59 percent good-to-excellent and 9 percent poor-to-very poor; corn planted at 83 percent compared to 67 percent last week, 99 percent last year, and a 5-year average of 99 percent; and corn emerged at 62 percent compared to 46 percent last week, 93 percent last year, and a 5-year average of 93 percent. In Tennessee, the Crop Progress report estimated corn condition at 72 percent good-to-excellent and 5 percent poor-to-very poor; corn planted at 99 percent compared to 95 percent last week, 100 percent last year, and a 5-year average of 99 percent; corn emerged at 93 percent compared to 88 percent last week, 97 percent last year, and a 5-year average of 97 percent; and corn silking at 2 percent compared to 1 percent last week, 1 percent last year, and a 5-year average of 1 percent. In Tennessee, September 2019 corn cash forward contracts averaged $4.22 with a range of $3.94 to $4.48. September 2019 corn futures closed at $4.58, up 34 cents since last Friday. December 2019 corn futures closed at $4.63, up 30 cents since last Friday. Downside price protection could be obtained by purchasing a $4.70 December 2019 Put Option costing 35 cents establishing a $4.35 futures floor.
Soybeans
Net sales reported by exporters were down compared to last week with net sales of 9.4 million bushels for the 2018/19 marketing year and 10.1 million bushels for the 2019/20 marketing year. Exports for the same period were up 34 percent compared to last week at 27.9 million bushels. Soybean export sales and commitments were 101 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 weakened at Northwest Barge Points, Northwest, and Upper-middle Tennessee. Basis ranged from 44 under to 30 over the July futures contract at elevators and barge points. Average basis at the end of the week was 5 under the July futures contract. July 2019 soybean futures closed at $8.96, up 40 cents since last Friday. For the week, July 2019 soybean futures traded be-tween $8.48 and $8.98. July soybean-to-corn price ratio was 1.98 at the end of the week. August 2019 soybean futures closed at $9.03, up 40 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 60 percent compared to 39 percent last week, 92 percent last year, and a 5-year average of 88 percent; and soybeans emerged at 34 percent compared to 19 percent last week, 81 percent last year, and a 5-year average of 73 percent. In Tennessee, the Crop Progress report estimated soybean condition at 77 percent good-to-excellent and 4 percent poor-to-very poor; soybeans planted at 77 percent compared to 64 percent last week, 78 percent last year, and a 5-year average of 69 percent; and soybeans emerged at 59 percent compared to 43 percent last week, 58 percent last year, and a 5-year average of 52 percent. In Tennessee, October/November 2019 soybean cash contracts average $8.57 with a range of $8.22 to $8.93. November 2019 soybean futures closed at $9.23, up 40 cents since last Friday. Downside price protection could be achieved by purchasing a $9.40 November 2019 Put Option which would cost 57 cents and set an $8.83 futures floor. Nov/Dec 2019 soybean-to-corn price ratio was 1.99 at the end of the week.
Cotton
Net sales reported by exporters were down compared to last week at 75,100 bales for the 2018/19 marketing year and 43,000 bales for the 2019/20 marketing year. Exports for the same time period were up 17 percent compared to last week at 360,400 bales. Up-land cotton export sales were 111 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 13 were 63.08 cents/lb (41-4-34) and 65.33 cents/lb (31-3-35). Adjusted World Price (AWP) decreased 2.54 cents to 58.97 cents. July 2019 cotton futures closed at 65.94, up 0.35 cents since last Friday. For the week, July 2019 cotton futures traded between 64.85 and 67.52 cents. Jul/Dec and Jul/Mar cotton futures spreads were -0.19 cents and 0.44 cents.
Nationally, the Crop Progress report estimated cotton condition at 44 percent good-to-excellent and 15 percent poor-to-very poor; cotton planted at 75 percent compared to 71 percent last week, 88 percent last year, and a 5-year average of 87 percent; and cotton squaring at 11 percent compared to 8 percent last week, 14 percent last year, and a 5-year average of 11 percent. In Tennessee, the Crop Progress report estimated cotton condition at 64 percent good-to-excellent and 12 percent poor-to-very poor; cotton planted at 97 percent compared to 91 percent last week, 98 percent last year, and a 5-year aver-age of 97 percent; and cotton squaring at 15 percent compared to 4 percent last week, 14 percent last year, and a 5-year average of 11 percent. December 2019 cotton futures closed at 65.75, up 0.24 cents since last Friday. Downside price protection could be obtained by purchasing a 66 cent December 2019 Put Option costing 3.24 cents establishing a 62.76 cent futures floor. March 2020 cotton futures closed at 66.38, up 0.24 cents since last Friday
Wheat
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 83 percent compared to 76 percent last week, 90 percent last year, and a 5-year average of 91 percent; winter wheat harvested at 4 percent compared to 13 percent last year and a 5-year average of 10 percent; spring wheat condition at 81 percent good-to-excellent and 1 percent poor-to-very poor; spring wheat planted at 97 percent compared to 93 percent last week, 99 percent last year, and a 5-year average of 99 percent; and spring wheat emerged at 85 percent compared to 69 percent last week, 92 percent last year, and a 5-year average of 93 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 95 percent compared to 86 percent last week, 96 percent last year, and a 5-year average of 91 percent; winter wheat mature at 51 percent compared to 40 percent last week, 62 percent last year, and a 5-year average of 57 percent; and winter wheat harvested at 15 percent compared to 3 percent last week and 11 percent last year. In Tennessee, June/July 2019 wheat cash contracts ranged from $4.97 to $5.81 for the week. July 2019 wheat futures closed at $5.38, up 34 cents since last Friday. July 2019 wheat futures traded between $4.93 and $5.44 this week. July wheat-to-corn price ratio was 1.21. Jul/Sep and Jul/Jul future spreads were 4 and 22 cents.
A total of 58 million bushels in export sales were carried over from the 2018/19 marketing year (ended May 31) into the 2019/20 marketing year. Accumulated exports for 2018/19 were 889.2 million bushels. Wheat net sales reported by exporters were down compared to last week with net sales of 1.7 million bushels for the 2019/20 marketing year. Exports for the same time period were down 47 percent from last week at 14.6 million bushels. Wheat export sales were 25 percent of the USDA estimated total annual exports for the 2019/20 marketing year (June 1 to May 31), compared to a 5-year average of 25 percent. September 2019 wheat futures closed at $5.42, up 33 cents since last Friday. July 2020 wheat futures closed at $5.60, up 15 cents since last Friday. Downside price protection could be obtained by purchasing a $5.70 July 2020 Put Option costing 49 cents establishing a $5.21 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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