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Volatility Should Continued To Be Expected In Corn Markets
DR. AARON SMITH
KNOXVILLE, TENN.
December corn futures appreciated almost 20 cents after a 2 month low of $3.97 ¼ was established on August 1. With so much production uncertainty in corn markets volatility should continue to be expected until further clarification is provided to markets next week.
November soybeans futures rebounded this week after last week’s sharp declines due to intensification of the China-US trade war. Last week, President Trump announced an additional 10 percent tariff on $300 billion of primarily consumer goods from China. China responded by allowing it’s currency to devalue, sparking the US to label China a currency manipulator. The latest escalation in the trade war indicates a short term solution is highly unlikely. Commodities like soybeans and cotton that have a strong history of US exports to China will continue to suffer from reduced market access and low prices in the short term. Long term the billion dollar question is can US market share for these commodities be recovered. With Brazil rapidly expanding production soybeans and cotton, to meet China demand, historical US trade relationships will be more challenging to reestablish.
Next week the USDA will release updated planted acre and yield estimates. Currently, the USDA estimates planted acres of corn and soybeans at 91.7 and 80.0 million acres and yields at 166.0 and 48.5 bu/acre. For corn, most analysts expect planted acres to be decreased by 2-8 million acres. This is a very wide range that at the high and low end equates to more than a 1 billion bushel difference in analyst projections. This massive range sets the table for potential fireworks in corn markets on Monday. Market estimates of soybean acres planted range from 79 to 83 million acres. The estimates released Monday are likely to dictate price direction in the short term.
Corn
Ethanol production for the week ending August 2 was 1.040 million barrels per day, up 9,000 from the previous week. Ethanol stocks were 23.117 million barrels, down 1.351 million barrels. Corn net sales reported by exporters for July 26-August 1 were down from last week with net sales of 1.7 million bushels for the 2018/19 marketing year and 7.8 million bushels for the 2019/20 marketing year. Exports for the same time period were down 2 percent from last week at 27.3 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 104 percent. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Northwest Barge Points, Upper-Middle, and Northwest Tennessee and weakened at Memphis. Overall, basis for the week ranged from 16 under to 22 over with an average of 4 over the September futures at elevators and barge points. September 2019 corn futures closed at $4.10, up 11 cents since last Friday. For the week, September 2019 corn futures traded be-tween $3.91 and $4.17. Sep/Dec(’19) and Sep/Dec(‘20) future spreads were 7 and 5 cents.
Nationally, the Crop Progress report estimated corn condition at 57 percent good-to-excellent and 13 percent poor-to-very poor; corn silking at 78 percent compared to 58 percent last week, 95 percent last year, and a 5-year average of 93 percent; and corn dough at 23 percent compared to 13 percent last week, 54 percent last year, and a 5-year average 42 percent. In Tennessee, the Crop Progress report estimated corn condition at 86 percent good-to-excellent and 3 percent poor-to-very poor; corn silking at 97 percent compared to 94 percent last week, 98 percent last year, and a 5-year average of 98 percent; corn dough at 79 percent compared to 66 percent last week, 87 percent last year, and a 5-year average of 80 percent; and corn dented at 22 percent compared to 23 percent last year and a 5-year average of 22 percent. In Tennessee, September 2019 corn cash forward contracts averaged $3.97 with a range of $3.83 to $4.09. December 2019 corn futures closed at $4.17, up 8 cents since last Friday. Downside price protection could be obtained by purchasing a $4.20 December 2019 Put Option costing 25 cents establishing a $3.95 futures floor. December 2020 corn futures closed at $4.15, up 3 cents since last Friday.
Soybeans
Net sales reported by exporters were down compared to last week with net sales of 3.7 million bushels for the 2018/19 marketing year and 11.7 million bushels for the 2019/20 marketing year. Exports for the same period were up 10 percent compared to last week at 37.4 million bushels. Soybean export sales and commitments were 106 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 weakened at Memphis, Northwest Barge Points, Northwest, and Upper-middle Tennessee. Basis ranged from 57 under to 3 over the September futures contract at elevators and barge points. Average basis at the end of the week was 22 under the September futures contract. September 2019 soybean futures closed at $8.79, up 24 cents since last Friday. For the week, September 2019 soybean futures traded between $8.41 and $8.82. September soybean-to-corn price ratio was 2.14 at the end of the week. Sep/Nov and Sep/Jan future spreads were 12 and 25 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 72 percent compared to 57 percent last week, 91 percent last year, and a 5-year average of 87 percent; and soybeans setting pods at 37 percent compared to 21 percent last week, 73 percent last year, and a 5-year average of 63 percent. In Tennessee, the Crop Progress report estimated soybean condition at 77 percent good-to-excellent and 5 percent poor-to-very poor; soybeans blooming at 78 percent compared to 68 percent last week, 88 percent last year, and a 5-year average of 83 percent; and soybeans setting pods at 54 percent compared to 41 percent last week, 66 percent last year, and a 5-year average of 59 percent. In Tennessee, October/November 2019 soybean cash contracts average $8.33 with a range of $8.02 to $8.62. November 2019 soybean futures closed at $8.91, up 23 cents since last Friday. Downside price protection could be achieved by purchasing a $9.00 November 2019 Put Option which would cost 32 cents and set an $8.68 futures floor. Nov/Dec 2019 soybean-to-corn price ratio was 2.14 at the end of the week. January 2020 soybean futures closed at $9.04, up 22 cents since last Friday.
Cotton
Net sales reported by exporters were down compared to last week with net sales of 179,500 bales for the 2019/20 marketing year. Exports for the same time period were up 18 percent compared to last week at 345,500 bales. Net sales of 7.37 million bales were carried over into the 2019/20 marketing year which began August 1. Accumulated sales for the 2018/19 marketing year were 13.16 million bales, down 11 percent from 2017/18. Upland cotton export sales were 55 percent of the USDA estimated total annual exports for the 2019/20 marketing year (August 1 to July 31), compared to the previous 5-year average of 41 percent. Delta upland cotton spot price quotes for August 8 were 56.04 cents/lb (41-4-34) and 58.29 cents/lb (31-3-35). Adjusted World Price (AWP) decreased 4.29 cents to 52.67 cents.
Nationally, the Crop Progress report estimated cotton condition at 54 percent good-to-excellent and 13 percent poor-to-very poor; cotton squaring at 95 percent compared to 86 percent last week, 91 percent last year, and a 5-year average of 93 percent; and cotton setting bolls at 59 percent compared to 45 percent last week, 58 percent last year, and a 5-year average of 61 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 97 percent compared to 88 percent last week, 100 percent last year, and a 5-year average of 97 percent; and cotton setting bolls at 65 percent compared to 47 percent last week, 83 percent last year, and a 5-year average of 74 percent. December 2019 cotton futures closed at 58.9, down 0.52 cents since last Friday. For the week, December 2019 cotton futures traded between 57.26 and 60.14 cents. Dec/Mar and Dec/Dec cotton futures spreads were 0.96 cents and 4.35 cents. Downside price protection could be obtained by purchasing a 59 cent December 2019 Put Option costing 2.65 cents establishing a 56.35 cent futures floor. March 2020 cotton futures closed at 59.86, down 0.85 cents since last Friday. December 2020 cotton futures closed at 63.25, down 0.45 cents since last Friday.
Wheat
Nationally, the Crop Progress report estimated winter wheat harvested at 82 percent compared to 75 percent last week, 89 percent last year, and a 5-year average of 92 percent; spring wheat condition at 73 percent good-to-excellent and 5 percent poor-to-very poor; and spring wheat harvested at 2 percent compared to 12 percent last year and a 5-year average of 14 percent. In Tennessee, July 2019 wheat cash contracts ranged from $4.76 to $5.22 for the week.
Wheat net sales reported by exporters were up compared to last week with net sales of 17.9 million bushels for the 2019/20 marketing year. Exports for the same time period were down 10 percent from last week at 13.5 million bushels. Wheat export sales were 36 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 41 percent. September 2019 wheat futures closed at $4.99, up 9 cents since last Friday. September 2019 wheat futures traded between $4.77 and $5.05 this week. September wheat-to-corn price ratio was 1.22. Sep/Dec and Sep/Jul future spreads were 2 and 19 cents. December 2019 wheat futures closed at $5.01, up 10 cents since last Friday. In Memphis, June/July 2020 cash contracts ranged from $5.06 to $5.14. July 2020 wheat futures closed at $5.18, up 8 cents since last Friday. Downside price protection could be obtained by purchasing a $5.12 July 2020 Put Option costing 36 cents establishing a $4.84 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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