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Futures Closing Out 2019 With Increases For Corn, Soybean, Cotton And Wheat
DR. AARON SMITH
KNOXVILLE, TENN.
Futures prices are closing out 2019 with back-to-back weekly increases for corn, soybean, cotton, and wheat. For the month of December, new crop corn futures have increased 9 ¾ cents, opening at $3.92 and closing Friday at $4.01 ¾. While it is too early in the 2020 crop marketing year to get too aggressive with pricing production, futures prices approaching $4.10 may be a good starting point to price a small amount of production (5-10 percent).
New crop soybean futures have appreciated 37 ½ cents since the start of the month, $9.28 ¾ to $9.66 ¼. Sub $10 prices are unlikely to attract a lot of new crop sales, however putting in some downside price protection may be a solid risk management decision given the continued uncertainty with China. Progress has been made with agreement on Phase 1 of a trade deal, but I don’t think we have seen the last of trade news related volatility in soybean futures.
New crop (December 2020) cotton futures have rallied 13.7 percent since the August low of 61.2 cents. Positive trade developments with China have contributed to the rally however the primary driver in the August-December rally has been supply and de-mand. Estimated 2019 US production has been reduced 2.31 million bales from the August WASDE to the December WASDE, a 10.3 percent reduction. Over the same time period, foreign cotton production was reduced 2.19 million bales or a 2.1 percent reduction.
Similar to December cotton, July wheat has been on a steady upward climb since the end of summer. On September 3, July wheat futures closed at $4.69 ½, since then prices have appreciated 79 ¼ cents closing Friday at $5.48 ¾. Futures prices above $5.50 may be a good place to price some additional 2020 wheat production.
Corn
Ethanol production for the week ending December 13 was 1.064 million barrels per day, down 8,000 from the previous week. Ethanol stocks were 21.798 million barrels, down 17,000 barrels compare to last week. Corn net sales reported by exporters for December 6-12 were up compared to last week with net sales of 67.3 million bushels for the 2019/20 marketing year and 21.1 million bushels for the 2020/21 marketing year. Exports for the same time period were up 36 percent from last week at 28.3 million bushels. Corn export sales and commitments were 37 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 52 percent. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened at Memphis, Northwest Barge Points, and Northwest Tennessee and weakened at Upper-middle Tennessee. Overall, basis for the week ranged from 13 under to 19 over with an average of 11 over the March futures at elevators and barge points. In Tennessee, January corn cash contracts averaged $4.04 with a range of $3.94 to $4.10. March 2020 corn futures closed at $3.87, up 6 cents since last Friday. For the week, March 2020 corn futures traded between $3.83 and $3.90. Mar/May and Mar/Dec future spreads were 7 and 14 cents. May 2020 corn futures closed at $3.94, up 6 cents since last Friday.
In Memphis, new crop cash corn contracts ranged from $3.86 to $3.95. December 2020 corn futures closed at $4.01, up 6 cents since last Friday. Downside price protection could be obtained by purchasing a $4.10 December 2020 Put Option costing 31 cents establishing a $3.79 futures floor.
Soybeans
Net sales reported by exporters were up compared to last week with net sales of 52.6 million bushels for the 2019/20 marketing year and 1.3 million bushels for the 2020/21 marketing year. Exports for the same period were down 3 percent compared to last week at 51.7 million bushels. Soybean export sales and commitments were 59 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 72 percent. Average soybean basis strengthened or remained unchanged at Memphis, Northwest Barge Points, Northwest, and Upper-middle Tennessee. Basis ranged from 41 under to 31 over the January futures contract at elevators and barge points. Average basis at the end of the week was 11 over the January futures contract. January 2020 soybean futures closed at $9.28, up 21 cents since last Friday. For the week, January 2020 soybean futures traded between $9.12 and $9.31. In Tennessee, January 2020 cash con-tracts ranged from $8.92 to $9.58. Jan/Mar and Jan/Nov future spreads were 10 and 38 cents. March 2020 soybean futures closed at $9.38, up 17 cents since last Friday. March soybean-to-corn price ratio was 2.42 at the end of the week.
In Memphis, new crop soybean cash contracts ranged from $9.42 to $9.59. Nov/Dec 2020 soybean-to-corn price ratio was 2.41 at the end of the week. November 2020 soybean futures closed at $9.66, up 15 cents since last Friday. Downside price protection could be achieved by purchasing a $9.80 November 2020 Put Option which would cost 57 cents and set a $9.23 futures floor.
Cotton
Net sales reported by exporters were down compared to last week with net sales of 249,400 bales for the 2019/20 marketing year and 1,100 bales for the 2020/21 marketing year. Exports for the same time period were up 14 percent compared to last week at 213,200 bales. Upland cotton export sales were 72 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 66 percent. Delta upland cotton spot price quotes for December 19 were 65.08 cents/lb (41-4-34) and 67.33 cents/lb (31-3-35). Adjusted World Price (AWP) increased 1.07 cents to 57.73 cents. March 2020 cotton futures closed at 67.96 cents, up 1.16 cents since last Friday. For the week, March 2020 cotton futures traded between 66.25 and 68.31 cents. Mar/May and Mar/Dec cotton futures spreads were 1.04 cents and 1.65 cents. May 2020 cotton futures closed at 69, up 1.03 cents since last Friday.
December 2020 cotton futures closed at 69.61, up 0.83 cents since last Friday. Downside price protection could be obtained by purchasing a 70 cent December 2020 Put Option costing 4.57 cents establishing a 65.43 cent futures floor.
Wheat
Wheat net sales reported by exporters were up compared to last week with net sales of 31.9 million bushels for the 2019/20 marketing year. Exports for the same time period were up 36 percent from last week at 19.5 million bushels. Wheat export sales were 67 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 77 percent. In Tennessee, December 2019 wheat cash contracts ranged from $5.37 to $5.92 for the week. March 2020 wheat futures closed at $5.42, up 10 cents since last Friday. March 2020 wheat futures traded between $5.34 and $5.57 this week. March wheat-to-corn price ratio was 1.40. Mar/May and Mar/Jul future spreads were 4 and 6 cents. May 2020 wheat futures closed at $5.46, up 12 cents since last Friday. May wheat-to-corn price ratio was 1.39.
In Memphis, June/July 2020 cash contracts ranged from $5.70 to $5.79. July 2020 wheat futures closed at $5.48, up 11 cents since last Friday. Downside price protection could be obtained by purchasing a $5.50 July 2020 Put Option costing 35 cents establishing a $5.15 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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