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November USDA WASDE Report Fueled A Sharp Rally In Corn And Soybean Futures
DR. AARON SMITH
KNOXVILLE, TENN.
The November USDA WASDE report fueled a sharp rally in corn and soybean futures. Both national average yields were decreased compared to last month. Corn decreased 2.6 bpa, to 175.8 bpa and soybeans decreased 1.2 bpa to 50.7 bpa. The other major revision for corn was an increase in exports of 325 million bushels to 2.65 billion for the 2020/21 marketing year. Soybean exports were left unchanged at 2.2 billion bushels, in spite of the strong export sales pace year-to-date. With soybean ending stocks now projected at 190 million bushels, the lowest amount in seven years, it would be challenging for USDA to increase projected exports unless crush is reduced or production is increased. The report was received by markets as very bullish with corn futures up about 15 cents and soybean futures up 35 cents for the day.
Soybean futures have now had back-to-back weeks with 40+ cent increases and with the new USDA supply and demand ending stocks projection of 190 million, a reasonable argument can be made for $12.00 soybeans (however a pullback in the short term is also a distinct possibility). With U.S. stocks tightening and Brazil/Argentina production uncertain, volatility should be expected.
Cotton futures have slid 3-4 cents off the highs three weeks ago. U.S. stocks (7.2 million bales) and global stocks (101.44 million bales) remain problematic for higher prices. Additionally, COVID-19 lockdowns, domestically and globally, create an uncertain demand picture as we move into the holiday season. Improvement in demand seems to be the only path toward higher cotton prices, but that is challenging to project given current circumstances.
July wheat futures have moved mostly sideways over the past four weeks between $5.85 and $6.25. Currently, markets are weighing drought in the US plains, weather concerns in Argentina, Russia, EU, and Ukraine, and record global stocks.
Corn
Ethanol production for the week ending November 6 was 0.977 million barrels per day, up 16,000 barrels from the previous week. Ethanol stocks were 20.159 million barrels, up 0.484 million barrels compared to last week. Corn net sales reported by exporters for October 30-November 5 were down compared to last week with net sales of 38.5 million bushels for the 2020/21 marketing year. Exports for the same time period were up less than 1 percent from last week at 28.8 million bushels. Corn export sales and commitments were 51 percent of the USDA estimated total exports for the 2020/21 marketing year (September 1 to August 31) compared to the previous 5-year average of 38 percent.
Nationally the Crop Progress report estimated corn harvested at 91 percent compared to 82 percent last week, 62 percent last year, and a 5-year average of 80 percent. In Tennessee, the Crop Progress report estimated corn harvested at 97 percent compared to 94 percent last week, 100 percent last year, and a 5-year average of 99 percent. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Northwest and North-Central and weakened at Mississippi River, West-Central, and West elevators and barge point. Overall, basis for the week ranged from 20 under to 13 over, with an average of 7 under the December futures. December 2020 corn futures closed at $4.10, up 4 cents since last Friday. For the week, December 2020 corn futures traded between $4.01 and $4.28. Dec/Mar and Dec/Dec future spreads were 9 and -6 cents. March 2021 corn futures closed at $4.19, up 6 cents since last Friday. December 2021 corn futures closed at $4.04, up 9 cents since last Friday. Downside price protection could be obtained by purchasing a $4.10 December 2021 Put Option costing 31 cents establishing a $3.79 futures floor.
Soybeans
Net sales reported by exporters were down compared to last week with net sales of 54.0 million bushels for the 2020/21 marketing year. Exports for the same period were up 27 percent compared to last week at 117.9 million bushels (a marketing year high). Soybean export sales and commitments were 83 percent of the USDA estimated total annual exports for the 2020/21 marketing year (September 1 to August 31), compared to the previous 5-year average of 55 percent.
Nationally the Crop Progress report estimated soybeans harvested at 92 percent compared to 87 percent last week, 82 percent last year, and a 5-year average of 90 percent. In Tennessee, soybeans harvested at 71 percent compared to 58 percent last week, 79 percent last year, and a 5-year average of 78 percent. Across Tennessee, average soybean basis weakened at Mississippi River, West, West-Central, North-Central, and Northwest elevators and barge points. Basis ranged from 37 under to even the January futures contract. Average basis at the end of the week was 27 under the January futures contract. January 2021 soybean futures closed at $11.48, up 47 cents since last Friday. For the week, January 2021 soybean futures traded between $10.99 and $11.62. Jan/Mar and Jan/Nov future spreads were 0 and -108 cents. March 2021 soybean futures closed at $11.48, up 49 cents since last Friday. November 2021 soybean futures closed at $10.40, up 34 cents since last Friday. Downside price protection could be achieved by purchasing a $10.60 November 2021 Put Option which would cost 90 cents and set a $9.70 futures floor. Nov/Dec 2021 soybean-to-corn price ratio was 2.57 at the end of the week.
Cotton
Net sales reported by exporters were up compared to last week with net sales of 236,800 bales for the 2020/21 marketing year and 14,800 bales for the 2021/22 marketing year. Exports for the same time period were up 9 percent compared to last week at 293,000 bales. Upland cotton export sales were 67 percent of the USDA estimated total annual exports for the 2020/21 marketing year (August 1 to July 31), compared to the previous 5-year average of 59 percent. Delta upland cotton spot price quotes for November 12 were 66.23 cents/lb (41-4-34) and 68.46 cents/lb (31-3-35). Adjusted World Price (AWP) increased 0.7 cents to 56.71 cents.
Nationally, the Crop Progress report estimated cotton harvested at 61 percent compared to 52 percent last week, 59 percent last year, and a 5-year average of 57 percent. In Tennessee, cotton harvested was estimated at 64 percent compared to 52 percent last week, 71 percent last year, and a 5-year average 76 percent. December 2020 cotton futures closed at 68.46, down 0.16 cents since last Friday. For the week, December 2020 cotton futures traded between 68.22 and 70.44 cents. Dec/Mar and Dec/Dec cotton futures spreads were 1.94 cents and 0.39 cents. March 2021 cotton futures closed at 70.40 cents, up 0.25 cents since last Friday. December 2021 cotton futures closed at 68.85 cents, up 0.18 cents since last Friday. Downside price protection could be obtained by purchasing a 69 cent December 2021 Put Option costing 5.09 cents establishing a 63.91 cent futures floor.
Wheat
Wheat net sales reported by exporters were down compared to last week with net sales of 11.0 million bushels for the 2020/21 marketing year. Exports for the same time period were up 11 percent from last week at 13.0 million bushels. Wheat export sales were 65 percent of the USDA estimated total annual exports for the 2020/21 marketing year (June 1 to May 31), compared to the previous 5-year average of 64 percent.
Nationally the Crop Progress report estimated winter wheat condition at 45 percent good-to-excellent and 17 percent poor-to-very poor; winter wheat planted at 93 percent compared to 89 percent last week, 91 percent last year, and a 5-year average of 91 percent; and winter wheat emerged at 79 percent compared to 71 percent last week, 76 percent last year, and 5-year average of 78 percent. In Tennessee, winter wheat condition was estimated at 69 percent good-to-excellent and 3 percent poor-to-very poor; winter wheat planted was estimated at 78 percent compared to 64 percent last week, 65 percent last year, and a 5-year average of 71 percent; and winter wheat emerged at 60 percent compared to 48 percent last week, 45 percent last year, and a 5-year average of 48 percent. December 2020 wheat futures closed at $5.93, down 9 cents since last Friday. December 2020 wheat futures traded between $5.80 and $6.13 this week. December wheat-to-corn price ratio was 1.45. Dec/Mar and Dec/Jul future spreads were 9 and 9 cents. March 2021 wheat futures closed at $6.02, down 7 cents since last Friday. In Tennessee, new crop wheat cash contracts ranged from $5.84 to $6.24. July 2021 wheat futures closed at $6.02, down 3 cents since last Friday. Downside price protection could be obtained by purchasing a $6.10 July 2021 Put Option costing 50 cents establishing a $5.60 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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