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There Is Still A Great Deal Of Acreage Uncertainty
DR. AARON SMITH
KNOXVILLE, TENN.
Three factors continue to drive futures and cash corn and soybean prices: 1) planted acreage uncertainty – due to excessive rainfall and flooding across many counties in key production regions; 2) yield uncertainty – stand lateness/quality and susceptibility to an early frost could dramatically change US production; and 3) trade disputes.
The calendar has now rolled to August and we still have a great deal of acreage uncertainty. Typically, planted acreage is clarified in June/July and we look to yield uncertainty to dominate market direction. However, this year’s planting troubles and policy changes have muddied the waters on corn and soybean acreage. Hopefully, the USDA Crop Production and WASDE reports on August 12 will provide clarity for planted acres for corn and soybeans.
Yield prospects have improved across the country based on beneficial weather, however it remains uncertain as to how planting conditions and delayed development will affect corn and soybean yields. Fortunately, in Tennessee crop conditions and yield potential remain better than many other states. Worries over an early frost in northern corn producing states are a concern due to delayed plantings causing later maturity. An early frost good dramatically decrease US corn and soybean production.
While the dispute with China receives the lion’s share of the agricultural press regarding trade news, it remains important to note that USMCA (NAFTA’s replacement) still remains unfinished. Finalizing USMCA will be challenging given Canada’s Federal Elections in fall 2019 and the US Presidential Election in 2020. The impact of the trade war with China has had a dramatic impact on US agriculture, but a trade disruption with Canada and Mexico could be devastating to the US agricultural economy. According to USDA Foreign Agriculture Service, in 2017 (prior to the trade war with China) US agricultural exports to Canada, Mexico, and China were $20.5, $18.6, and $19.6 billion. As such, agricultural exports to Canada and Mexico are about 2x the value exported to China. The agricultural industries affected would be substantially different but the impact could be greater. Additionally, this does not consider impacts from the interconnected supply chains and the general economies of the three countries.
On Thursday, President Trump announced the US would put a 10 percent tariff on the remaining $300 billion of imported goods from China. It appears that once again negotiations have broken down and the hopes for a resolution in the short term have been extinguished. Market reaction to the news was swift with across the board declines.
Corn
Ethanol production for the week ending July 26 was 1.031 million barrels per day, down 8,000 from the previous week. Ethanol stocks were 24.468 million barrels, up 779,000 barrels. Corn net sales reported by exporters for July 19-25 were down from last week with net sales of 5.6 million bushels for the 2018/19 marketing year and 5.1 million bushels for the 2019/20 marketing year. Exports for the same time period were up 22 percent from last week at 27.7 million bushels. Corn export sales and commitments were 94 percent of the USDA estimated total annual exports for the 2018/19 marketing year (September 1 to August 31) compared to the previous 5-year average of 103 percent. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened at Northwest Tennessee and weakened at Memphis, Northwest Barge Points, and Upper-middle Tennessee. Overall, basis for the week ranged from 11 under to 31 over with an average of 7 over the September futures at elevators and barge points. September 2019 corn futures closed at $3.99, down 15 cents since last Friday. For the week, September 2019 corn futures traded between $3.87 and $4.19. Sep/Dec(’19) and Sep/Dec(‘20) future spreads were 10 and 13 cents.
Nationally, the Crop Progress report estimated corn condition at 58 percent good-to-excellent and 12 percent poor-to-very poor; corn silking at 58 percent compared to 35 percent last week, 90 percent last year, and a 5-year average of 83 percent; and corn dough at 13 percent compared to 5 percent last week, 35 percent last year and a 5-year average 23 percent. In Tennessee, the Crop Progress report estimated corn condition at 84 percent good-to-excellent and 3 percent poor-to-very poor; corn silking at 94 percent compared to 88 percent last week, 96 percent last year, and a 5-year average of 96 percent; and corn dough at 66 percent compared to 45 percent last week, 76 percent last year, and a 5-year average of 65 percent. In Tennessee, September 2019 corn cash forward contracts averaged $3.99 with a range of $3.79 to $4.22. December 2019 corn futures closed at $4.09, down 15 cents since last Friday. Downside price protection could be obtained by purchasing a $4.10 December 2019 Put Option costing 22 cents establishing a $3.88 futures floor. December 2020 corn futures closed at $4.12, down 4 cents since last Friday.
Soybeans
Net sales reported by exporters were up compared to last week with net sales of 5.3 million bushels for the 2018/19 marketing year and 11.2 million bushels for the 2019/20 marketing year. Exports for the same period were up 45 percent compared to last week at 33.9 million bushels. Soybean export sales and commitments were 105 percent of the USDA estimated total annual exports for the 2018/19 marketing year (September 1 to August 31), compared to the previous 5-year average of 103 percent. Average soybean basis strengthened at Memphis, Northwest, and Upper-middle Tennessee and weakened at Northwest Barge Points. Basis ranged from 53 under to 13 over the September futures contract at elevators and barge points. Average basis at the end of the week was 15 under the September futures contract. September 2019 soybean futures closed at $8.55, down 33 cents since last Friday. For the week, September 2019 soybean futures traded between $8.47 and $8.96. September soybean-to-corn price ratio was 2.14 at the end of the week. Sep/Nov and Sep/Jan future spreads were 13 and 27 cents.
Nationally, the Crop Progress report estimated soybean condition at 54 percent good-to-excellent and 13 percent poor-to-very poor; soybeans blooming at 57 percent compared to 40 percent last week, 85 percent last year, and a 5-year average of 79 percent; and soybeans setting pods at 21 percent compared to 7 percent last week, 58 percent last year, and a 5-year average of 45 percent. In Tennessee, the Crop Progress report estimated soybean condition at 78 percent good-to-excellent and 4 percent poor-to-very poor; soybeans blooming at 68 percent compared to 56 percent last week, 82 percent last year, and a 5-year average of 74 percent; and soybeans setting pods at 41 percent compared to 27 percent last week, 53 percent last year, and a 5-year average of 45 percent. In Tennessee, October/November 2019 soybean cash contracts average $8.57 with a range of $7.99 to $8.96. November 2019 soybean futures closed at $8.68, down 33 cents since last Friday. Downside price protection could be achieved by purchasing an $8.70 November 2019 Put Option which would cost 27 cents and set an $8.43 futures floor. Nov/Dec 2019 soybean-to-corn price ratio was 2.12 at the end of the week. January 2020 soybean futures closed at $8.82, down 32 cents since last Friday.
Cotton
Net sales reported by exporters were up compared to last week with net sales of 10,200 bales for the 2018/19 marketing year and 364,800 bales for the 2019/20 marketing year. Exports for the same time period were down 9 percent compared to last week at 291,200 bales. Upland cotton export sales were 116 percent of the USDA estimated total annual exports for the 2018/19 marketing year (August 1 to July 31), compared to the previous 5-year average of 107 percent. Delta upland cotton spot price quotes for August 1 were 58.34 cents/lb (41-4-34) and 60.59 cents/lb (31-3-35). Adjusted World Price (AWP) increased 0.89 cents to 56.96 cents.
Nationally, the Crop Progress report estimated cotton condition at 61 percent good-to-excellent and 11 percent poor-to-very poor; cotton squaring at 86 percent compared to 78 percent last week, 87 percent last year, and a 5-year average of 87 percent; and cotton setting bolls at 45 percent compared to 33 percent last week, 48 percent last year, and a 5-year average of 48 percent. In Tennessee, the Crop Progress report estimated cotton condition at 68 percent good-to-excellent and 11 percent poor-to-very poor; cotton squaring at 88 percent compared to 79 percent last week, 98 percent last year, and a 5-year average of 94 percent; and cotton setting bolls at 47 percent compared to 24 percent last week, 67 percent last year, and a 5-year average of 59 percent. December 2019 cotton futures closed at 59.42, down 5.12 cents since last Friday. For the week, December 2019 cotton futures traded be-tween 59.37 and 64.45 cents. Dec/Mar and Dec/Dec cotton futures spreads were 1.29 cent and 4.28 cents. Downside price protection could be obtained by purchasing a 60 cent December 2019 Put Option costing 2.9 cents establishing a 57.1 cent futures floor. March 2020 cotton futures closed at 60.71, down 4.75 cents since last Friday. December 2020 cotton futures closed at 63.7, down 2.6 cents since last Friday.
Wheat
Nationally, the Crop Progress report estimated winter wheat harvested at 75 percent compared to 69 percent last week, 84 percent last year, and a 5-year average of 86 percent; spring wheat condition at 73 percent good-to-excellent and 6 percent poor-to-very poor; and spring wheat headed at 97 percent compared to 92 percent last week, 99 percent last year, and a 5-year average of 98 percent. In Tennessee, July 2019 wheat cash contracts ranged from $4.65 to $5.10 for the week.
Wheat net sales reported by exporters were down compared to last week with net sales of 14.1 million bushels for the 2019/20 marketing year. Exports for the same time period were down 17 percent from last week at 15.1 million bushels. Wheat export sales were 34 percent of the USDA estimated total annual exports for the 2019/20 marketing year (June 1 to May 31), compared to the previous 5-year average of 39 percent. September 2019 wheat futures closed at $4.90, down 6 cents since last Friday. September 2019 wheat futures traded between $4.71 and $5.07 this week. September wheat-to-corn price ratio was 1.23. Sep/Dec and Sep/Jul future spreads were 1 and 20 cents. December 2019 wheat futures closed at $4.91, down 13 cents since last Friday. In Memphis, June/July 2020 cash contracts ranged from $5.01 to $5.25. July 2020 wheat futures closed at $5.10, down 11 cents since last Friday. Downside price protection could be obtained by purchasing a $5.10 July 2020 Put Option costing 35 cents establishing a $4.75 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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