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COVID-19 Updates Move Prices Off Recent Lows
DR. AARON SMITH
KNOXVILLE, TENN.
Prices moved off recent lows as optimism has emerged that the COVID-19 infection curve has been flattened in the U.S. Continued vigilance with washing hands and social distancing is still required to help reduce the spread of the virus. While we are a long ways off from an economic recovery, hopefully we have seen the worst of the market reaction for agricultural commodities. The hope for a dramatic recovery in commodity prices may be premature at this time, however if we can return to trading normal supply and demand factors (for ex-ample, acres planted, weather, export sales. etc) rather than global economic factors impacting short and long term demand we will hopefully be moving in the right direction for establishing a new normal.
The harvest futures contract price ratio for soybeans-to-corn has increased to 2.5. This winter the price ratio neared 2.0, at the time dramatically favoring corn plantings over soybeans from a pricing standpoint. While prices are not where producers would like them, the increase in the soybean-to-corn price ratio may reduce corn acres from the Prospective Planting report estimate of 97 million acres planted.
Corn export data released this week were very strong, setting marketing year highs for both export sales and export shipments for the 2019/20 marketing year. Reduced U.S. prices have made exports more attractive and importing countries are purchasing to shore up demand in uncertain times.
Cotton futures jumped more than 3 cents this week off of contract lows under 50 cents. Prices near 55 cents will not attract additional acres in the Mid-south where corn, soybeans, and sorghum provide better return prospects even at current depressed prices. Producers already invested in cotton infrastructure will continue with intended plantings to maintain their operations, however the path to profitability for the 2020 cotton crop will be challenging and likely require additional payments through USDA programs, if made available.
Corn
Ethanol production for the week ending April 3 was 0.672 million barrels per day, down 168,000 barrels from the previous week. Ethanol stocks were 27.091 million barrels, up 1.374 million barrels compare to last week. Corn net sales reported by exporters for March 27-April 2 were up compared to last week with net sales of 72.8 million bushels for the 2019/20 marketing year (a marketing year high) and 24.0 million bushels for the 2020/21 marketing year. Exports for the same time period were up 3 percent from last week at 50.8 million bushels (a marketing year high). Corn export sales and commitments were 77 percent of the USDA estimated total exports for the 2019/20 marketing year (September 1 to August 31) compared to the previous 5-year average of 83 percent. Across Tennessee, average corn basis (cash price-nearby futures price) weakened at Northwest and Upper-middle Tennessee and strengthened or remained unchanged at Memphis and Northwest Barge Points. Overall, basis for the week ranged from 11 under to 25 over, with an average of 10 over the May futures at elevators and barge points. May 2020 corn futures closed at $3.31, up 1 cent since last Friday. For the week, May 2020 corn futures traded between $3.25 and $3.35. May/Jul and May/Dec future spreads were 5 and 19 cents. July 2020 corn futures closed at $3.36, unchanged since last Friday.
In Tennessee, the Crop Progress report estimated corn planted at 1 percent compared to 6 percent last year and a 5-year average of 4 percent. In Tennessee, new crop cash corn contracts ranged from $3.20 to $3.50. December 2020 corn futures closed at $3.50, unchanged since last Friday. Downside price protection could be obtained by purchasing a $3.60 December 2020 Put Option costing 29 cents establishing a $3.31 futures floor.
Soybeans
Net sales reported by exporters were down compared to last week with net sales of 19.2 million bushels for the 2019/20 marketing year and 13.0 million bushels for the 2020/21 marketing year. Exports for the same period were down 23 percent compared to last week at 13.3 million bushels. Soybean export sales and commitments were 75 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 93 percent. Average soybean basis strengthened or remained unchanged at Memphis, Northwest, and Upper-middle Tennessee and weakened at Northwest Barge Points. Basis ranged from 11 under to 30 over the May futures contract at elevators and barge points. Average basis at the end of the week was 15 over the May futures contract. May 2020 soybean futures closed at $8.63, up 9 cents since last Friday. For the week, May 2020 soybean futures traded between $8.48 and $8.67. May/Jul and May/Nov future spreads were 8 and 12 cents. July 2020 soybean futures closed at $8.71, up 12 cents since last Friday. May soybean-to-corn price ratio was 2.61 at the end of the week.
In Tennessee, new crop soybean cash contracts ranged from $8.26 to $8.83. Nov/Dec 2020 soybean-to-corn price ratio was 2.50 at the end of the week. November 2020 soybean futures closed at $8.75, up 14 cents since last Friday. Downside price protection could be achieved by purchasing an $8.80 November 2020 Put Option which would cost 43 cents and set an $8.37 futures floor.
Cotton
Net sales reported by exporters were down compared to last week with net sales cancellations of 5,200 bales for the 2019/20 marketing year and net sales of 107,400 bales for the 2020/21 marketing year. Exports for the same time period were up 21 percent compared to last week at 486,600 bales (a marketing year high). Upland cotton export sales were 100 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 96 percent. Delta up-land cotton spot price quotes for April 8 were 50.09 cents/lb (41-4-34) and 52.34 cents/lb (31-3-35). Adjusted World Price (AWP) increased 1.66 cents to 44.29 cents. May 2020 cotton futures closed at 54.37 cents, up 3.39 cents since last Friday. For the week, May 2020 cotton futures traded between 49.31 and 54.5 cents. May/Jul and May/Dec cotton futures spreads were 0.03 cents and 1.59 cents. July 2020 cotton futures closed at 54.4 cents, up 3.42 cents since last Friday.
Nationally the Crop Progress report estimated cotton planted at 7 percent, compared to 5 percent last year and a 5-year average of 5 percent. December 2020 cotton futures closed at 55.96, up 3.88 cents since last Friday. Downside price protection could be obtained by purchasing a 56 cent December 2020 Put Option costing 4.8 cents establishing a 51.2 cent futures floor.
Wheat
Wheat net sales reported by exporters were up compared to last week with net sales of 9.5 million bushels for the 2019/20 marketing year and 4.3 million bushels for the 2020/21 marketing year. Exports for the same time period were up 39 percent from last week at 14.0 million bushels. Wheat export sales were 92 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 102 percent. May 2020 wheat futures closed at $5.56, up 7 cents since last Friday. May 2020 wheat futures traded between $5.45 and $5.61 this week. May wheat-to-corn price ratio was 1.68. May/Jul and May/Sep future spreads were 1 and 5 cents.
Nationally the Crop Progress report estimated winter wheat condition at 62 percent good-to-excellent and 9 percent poor-to-very poor. In Tennessee, winter wheat was estimated at 60 percent good-to-excellent and 4 percent poor-to-very poor; and winter wheat jointing at 42 percent compared to 41 percent last year and a 5-year average of 45 percent. In Tennessee, June/July 2020 cash contracts ranged from $5.29 to $5.76. July 2020 wheat futures closed at $5.57, up 12 cents since last Friday. Downside price protection could be obtained by purchasing a $5.60 July 2020 Put Option costing 29 cents establishing a $5.31 futures floor. July wheat-to-corn price ratio was 1.66. September 2020 wheat futures closed at $5.61, up 14 cents since last Friday. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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