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Has The Contract Low For Corn Been Established?
DR. AARON SMITH
KNOXVILLE, TENN.
Futures prices were up for the week due to beneficial export data, trade news with China, and reductions in U.S. production estimates in the September WASDE report. For the December corn futures contract, the current contract low is $3.52 ¼ established on September 9th. Historically, the December contract low price occurs most often in September or October. Many are wondering if the contract low has been established, with prices closing the week almost 20 cents above the current contract low. A dramatic improvement in harvest prices remains unlikely, barring an unforeseen frost or other production disruption. Corn futures prices are more likely to trade sideways in a $3.55-$3.80 range as harvest progresses. In Tennessee, due to greater yields and harvested acres, corn basis is likely to be weaker than usual.
Soybean prices were a beneficiary of Chinese purchases and a mildly bullish WASDE report – indicating lower average US yields and lower U.S. and global ending stocks. It remains difficult to be overly optimistic for soybean price improvements due to increased anticipated South American production, African swine fever – reducing global feed demand, and the continuation of the trade dispute with China. That being said, November futures are now 83 ¼ cents higher than the contract low of $8.15 ½ established on May 13.
December cotton prices were up five consecutive trading sessions gaining 3.7 cents this week. Reductions in U.S. harvested acres and yield were the primary driver.
The Crop Production report forecasted U.S. average corn, soybean, and cotton yields at 168.2 bu/acre (down 1.3 bu/acre), 47.9 bu/acre (down 0.6 bu/acre), and upland cotton at 826 lb/acre (down 17 lb/acre). In Tennessee corn, soybean, and cotton average yields were estimated at 175 bu/acre (up 1 bu/acre), 50 bu/acre (unchanged), and 1,116 lb/acre (down 12 lb/acre).
Details of the September WASDE for corn, soybeans, cotton, and wheat can be accessed at: https://ag.tennessee.edu/arec/Pages/MonthlyCropComments.aspx.
Corn
Ethanol production for the week ending September 6 was 1.023 million barrels per day, up 10,000 from the previous week. Ethanol stocks were 22.801 million barrels, down 1.302 million barrels compare to last week. Corn net sales reported by exporters for August 30-September 5 were up from last week with net sales of 19.6 million bushels for the 2019/20 marketing year. Exports for the same time period were up 81 percent from last week at 27.2 million bushels. 28.9 million bushels of export sales were carried into the new marketing year, which started September 1. Accumulated export sales were 1.937 billion bushels for the marketing year ended August 31, down 14.4 percent compared to the previous marketing year. Corn export sales and commitments were 13 percent of the USDA estimated total annual exports for the 2019/20 marketing year (September 1 to August 31) compared to the previous 5-year average of 25 percent. Nationally, the Crop Progress report estimated corn condition at 55 percent good-to-excellent and 14 percent poor-to-very poor; corn dough at 89 percent compared to 81 percent last week, 99 percent last year, and a 5-year average 97 percent; corn dented at 55 percent compared to 41 percent last week, 84 percent last year, and a 5-year average of 77 percent; and corn mature at 11 percent compared to 6 percent last week, 33 percent last year, and a 5-year average of 24 percent. In Tennessee, the Crop Progress report estimated corn condition at 82 percent good-to-excellent and 3 percent poor-to-very poor; corn dough at 100 percent compared to 98 percent last week, 100 percent last year, and a 5-year average of 99 percent; corn dented at 94 percent compared to 87 percent last week, 96 percent last year, and a 5-year average of 95 percent; corn mature at 63 percent compared to 42 percent last week, 69 percent last year, and a 5-year average of 65 percent; and corn harvested at 16 percent compared to 5 percent last week, 21 percent last year, and a 5-year average of 18 percent. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis, Northwest Barge Points, and Upper-middle Tennessee and weakened at Northwest Tennessee. Overall, basis for the week ranged from 44 under to 9 under with an average of 23 under the December futures at elevators and barge points. December 2019 corn futures closed at $3.68, up 13 cents since last Friday. Downside price protection could be obtained by purchasing a $3.70 December 2019 Put Option costing 12 cents establishing a $3.58 futures floor. For the week, December 2019 corn futures traded between $3.52 and $3.72.
Dec/Mar and Dec/Dec future spreads were 13 and 38 cents. March 2020 corn futures closed at $3.81, up 13 cents since last Friday. In Tennessee, new crop corn cash contracts averaged $3.78 with a range of $3.69 to $3.84. December 2020 corn futures closed at $4.06, up 10 cents since last Friday.
Soybeans
Net sales reported by exporters were up compared to last week with net sales of 43.1 million bushels for the 2019/20 marketing year. Exports for the same period were down 12 percent compared to last week at 29.0 million bushels. 71.1 million bushels of export sales were carried into the new marketing year, which started September 1. Accumulated export sales were 1.719 billion bushels for the marketing year ended August 31, down 17.0 percent compared to the previous marketing year. Soybean export sales and commitments were 21 percent of the USDA estimated total annual exports for the 2019/20 marketing year (September 1 to August 31), compared to the previous 5-year average of 37 percent. Nationally, the Crop Progress report estimated soybean condition at 55 percent good-to-excellent and 12 percent poor-to-very poor; and soybeans setting pods at 92 percent compared to 86 percent last week, 100 percent last year, and a 5-year average of 99 percent. In Tennessee, the Crop Progress report estimated soybean condition at 69 percent good-to-excellent and 5 percent poor-to-very poor; soybeans setting pods at 95 percent compared to 89 percent last week, 100 percent last year, and a 5-year average of 96 percent; soybeans dropping leaves at 27 percent compared to 17 percent last week, 21 percent last year, and a 5-year average of 21 percent; and soybeans harvested at 2 percent compared to 0 percent last week, 3 percent last year, and a 5-year average of 1 percent. Average soybean basis weakened or remained unchanged at Memphis, Northwest Barge Points, Northwest, and Upper-middle Tennessee. Basis ranged from 80 under to 30 under the November futures contract at elevators and barge points. Average basis at the end of the week was 56 under the November futures contract. In Tennessee, October/November 2019 soybean cash contracts average $8.34 with a range of $8.08 to $8.64. November 2019 soybean futures closed at $8.98, up 41 cents since last Friday. Downside price protection could be achieved by purchasing a $9.00 November 2019 Put Option which would cost 21 cents and set an $8.79 futures floor. For the week, November 2019 soybean futures traded between $8.51 and $9.03. November/December soybean-to-corn price ratio was 2.44 at the end of the week.
Nov/Jan and Nov/Nov future spreads were 14 and 55 cents. Nov/Dec 2020 soybean-to-corn price ratio was 2.35 at the end of the week. January 2020 soybean futures closed at $9.12, up 40 cents since last Friday. November 2020 soybean futures closed at $9.53, up 31 cents since last Friday.
Cotton
Net sales reported by exporters were down compared to last week with net sales of 74,600 bales for the 2019/20 marketing year and 500 bales for the 2020/21 marketing year. Exports for the same time period were down 28 percent compared to last week at 166,900 bales. Upland cotton export sales were 52 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 46 percent. Nationally, the Crop Progress report estimated cotton condition at 43 percent good-to-excellent and 18 percent poor-to-very poor; cotton bolls opening at 43 percent compared to 36 percent last week, 38 percent last year, and a 5-year average of 37 percent; and cotton harvested at 7 percent compared to 9 percent last year and a 5-year average of 6 percent. In Tennessee, the Crop Progress report estimated cotton condition at 69 percent good-to-excellent and 11 percent poor-to-very poor; and cotton bolls opening at 27 percent compared to 13 percent last week, 66 percent last year, and a 5-year average of 40 percent. Delta upland cotton spot price quotes for September 5 were 61.25 cents/lb (41-4-34) and 63.50 cents/lb (31-3-35). Adjusted World Price (AWP) increased 0.71 cents to 52.28 cents. December 2019 cotton futures closed at 62.28, up 3.7 cents since last Friday. For the week, December 2019 cotton futures traded between 58.23 and 63.39 cents. Downside price protection could be obtained by purchasing a 63 cent December 2019 Put Option costing 2.54 cents establishing a 60.46 cent futures floor.
Dec/Mar and Dec/Dec cotton futures spreads were 0.5 cents and 2.78 cents. March 2020 cotton futures closed at 62.78, up 3.46 cents since last Friday. December 2020 cotton futures closed at 65.06, up 3.23 cents since last Friday.
Wheat
Nationally, the Crop Progress report estimated spring wheat harvested at 71 percent compared to 55 percent last week, 92 percent last year, and a 5-year average of 87 percent. Wheat net sales reported by exporters were up compared to last week with net sales of 22.4 million bushels for the 2019/20 marketing year and net sales cancellations of 0.3 million bushels for the 2020/21. Exports for the same time period were down 28 percent from last week at 14.9 million bushels. Wheat export sales were 45 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 50 percent. In Tennessee, September 2019 wheat cash contracts ranged from $4.58 to $4.99 for the week. December 2019 wheat futures closed at $4.83, up 20 cents since last Friday. December 2019 wheat futures traded between $4.60 and $4.91 this week. December wheat-to-corn price ratio was 1.31.
Dec/Mar and Dec/Jul future spreads were 6 and 14 cents. March 2020 wheat futures closed at $4.89, up 19 cents since last Friday. In Memphis, June/July 2020 cash contracts ranged from $4.84 to $4.96. July 2020 wheat futures closed at $4.97, up 18 cents since last Friday. Downside price protection could be obtained by purchasing a $5.00 July 2020 Put Option costing 33 cents establishing a $4.67 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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