Corn Export Sales Will Be The Key For Price Direction
DR. AARON SMITH
KNOXVILLE, TENN.
December corn futures have trended up since the recent September 10th low of $4.97 ½, closing this week at $5.30 ½. The average daily close for the December corn contract in 2021 has been $5.20 with a range of $4.30 to $6.37. So, it is very likely that the high and the low has been established for this year. Moving forward export sales will be the key for price direction. USDA projects exports for the 2021/22 marketing year at 2.475 billion bushels with current export sales commitments of 42 percent of that total five weeks into the 2021/22 marketing year –10 percent higher than the 5-year average.
November soybean futures prices have continued to weaken since the June 7 high of $14.80, closing this week at $12.43. The average daily close for the November soybean contract in 2021 has been $12.89, with a range of $11.12 to $14.80. Soybeans have been trending lower due to a larger US crop than anticipated and the potential of record planted acreage and production in Brazil. China purchasing large quantities of US soybeans over the next five months will be imperative to maintain price strength.
Where do cotton markets go from here? This is a challenging question to answer as cotton markets are in truly rare territory. The last time cotton futures were this high was July of 2011 when cotton futures were on the way down from the March 2011 peak of 219.7 cents. The 2011 rally saw cotton prices stay above $1 from October 2010 to July 2011.
While the current strength in cotton markets is undeniable it seems unlikely that markets are destined for that kind of run. In 2010/11, USDA estimated global cotton days on hand (stocks divided by daily use) at 155 days, for 2021/22 the estimate is 255 days. Export demand has been very strong with China leading the way, however, there appears to be some troubling signs with China’s economy that could have a dramatic impact on commodity prices. This uncertainty has the potential to change cotton price direction abruptly. Prices may continue to appreciate in the short term, but a pull back from current highs is the more likely path. The one thing that does seem likely is that volatility will persist in cotton futures markets.
Corn
Ethanol production for the week ending October 1 was 0.978 million barrels per day, up 64,000 from the previous week. Ethanol stocks were 19.931 million barrels, down 0.289 million compared to last week. Corn net sales reported by exporters for September 24-30, 2021, were up compared to last week with net sales of 49.8 million bushels for the 2021/22 marketing year. Exports for the same period were up 44 percent from last week at 38.3 million bushels. Corn export sales and commitments were 42 percent of the USDA estimated total exports for the 2021/22 marketing year (September 1 to August 31) compared to the previous 5-year average of 32 percent. Nationally, this week’s Crop Progress report estimated corn condition at 59 percent good-to- excellent and 15 percent poor-to-very poor; corn mature at 88 percent compared to 74 percent last week, 85 percent last year, and a 5-year average 77 percent; and corn harvested at 29 percent compared to 18 percent last week, 24 percent last year, and a 5-year average of 22 percent. In Tennessee, corn condition was estimated at 80 percent good- to-excellent and 4 percent poor-to-very poor; corn mature at 97 percent compared to 90 percent last week, 95 percent last year, and a 5-year average of 97 percent; and corn harvested at 57 percent compared to 43 percent last week, 57 percent last year, and a 5-year average of 75 percent. Across Tennessee, average corn basis (cash price-nearby futures price) weakened at Northwest and strengthened or remained unchanged at West, West-Central, North-Central, and Mississippi River elevators and barge points. Overall, basis for the week ranged from 18 under to 46 under, with an average of 30 under the December futures at elevators and barge points. December 2021 corn futures closed at $5.30, down 11 cents since last Friday. Downside price protection could be obtained by purchasing a $5.35 December 2021 Put Option costing 18 cents establishing a $5.17 futures floor. For the week, December 2021 corn futures traded between $5.27 and $5.47. In Tennessee, new crop cash corn prices at elevators and barge points ranged from $4.87 to $5.63.
Dec/Mar and Dec/May future spreads were 9 and 14 cents. March 2022 corn futures closed at $5.39, down 10 cents since last Friday. May 2022 corn futures closed at $5.44, down 10 cents since last Friday.
Soybeans
Net sales reported by exporters were down compared to last week with net sales of 38.3 million bushels for the 2021/22 marketing year. Exports for the same period were up 78 percent compared to last week at 34.5 million bushels. Soybean export sales and commitments were 45 percent of the USDA estimated total annual exports for the 2021/22 marketing year (September 1 to August 31), compared to the previous 5- year average of 48 percent. Nationally, this week’s Crop Progress report estimated soybean condition at 58 percent good-to-excellent and 14 percent poor-to-very poor; soybeans dropping leaves at 86 percent compared to 75 percent last week, 83 percent last year, and a 5-year average of 80 percent; and soybeans harvested 34 percent compared to 16 percent last week, 35 percent last year, and a 5-year average 26 percent. In Tennessee, soybean condition was estimated at 75 percent good-to-excellent and 5 percent poor-to-very poor; soybeans dropping leaves at 62 percent compared to 48 percent last week, 67 percent last year, and a 5-year average of 75 percent; and soybeans harvested at 15 percent compared to 9 percent last week, 20 percent last year, and a 5- year average of 25 percent. Across Tennessee, average soybean basis strengthened or remained unchanged at West, Northwest, West-Central, North-Central, and Mississippi River elevators and barge points. Basis ranged from 22 under to 70 under, with an average basis at the end of the week of 34 under the November futures contract. November 2021 soybean futures closed at $12.43, down 3 cents since last Friday. For the week, November 2021 soybean futures traded between $12.31 and $12.62. Downside price protection could be achieved by purchasing a $12.50 November 2021 Put Option which would cost 21 cents and set a $12.29 futures floor. Nov/Dec 2021 soybean-to-corn price ratio was 2.35 at the end of the week. In Tennessee, new crop cash soybean prices at elevators and barge points ranged from $11.65 to $12.55.
Nov/Jan and Nov/Mar future spreads were 11 and 20 cents. January 2022 soybean futures closed at $12.54, down 2 cents since last Friday. March 2022 soybean futures closed at $12.63, down 1 cent since last Friday. March 2022 soybean-to-corn price ratio was 2.34 at the end of the week.
Cotton
Net sales reported by exporters were down compared to last week with net sales of 246,700 bales for the 2021/22 marketing year and 55,000 for the 2022/23 marketing year. Exports for the same period were down 24 percent compared to last week at 125,100 bales – a marketing year low. Upland cotton export sales were 51 percent of the USDA estimated total annual exports for the 2021/22 marketing year (August 1 to July 31), compared to the previous 5-year average of 55 percent. Delta upland cotton spot price quotes for October 4 were 110.36 cents/lb (41-4-34) and 112.61 cents/lb (31-3-35). Adjusted world price increased 7.89 cents to 91.81 cents.
Nationally, this week’s Crop Progress report estimated cotton condition at 62 percent good-to-excellent and 6 percent poor-to-very poor; cotton bolls opening at 70 percent compared to 60 percent last week, 81 percent last year, and a 5-year average of 75 percent; and cotton harvested at 13 percent compared to 11 percent last week, 16 percent last year, and a 5-year average of 19 percent. In Tennessee, cotton condition was estimated at 64 percent good-to-excellent and 16 percent poor-to-very poor; cotton bolls opening at 55 percent compared to 40 percent last week, 82 percent last year, and a 5-year average of 87 percent; and cotton harvested at 1 percent compared to 0 percent last week, 6 percent last year, and a 5-year average of 15 percent.
December 2021 cotton futures closed at 110.6 cents, up 6.07 cents since last Friday. Downside price protection could be obtained by purchasing a 111 cent December 2021 Put Option costing 4.55 cents establishing a 106.45 cent futures floor. For the week, December 2021 cotton futures traded between 103.58 and 116.45 cents. Dec/Mar and Dec/ May cotton futures spreads were -2.69 cents and -3.83 cents. March 2022 cotton futures closed at 107.91 cents, up 6.47 cents since last Friday. May 2022 cotton futures closed at 106.77 cents, up 6.33 cents since last Friday.
Wheat
Wheat net sales reported by exporters were up compared to last week with net sales of 12.2 million bushels for the 2021/22 marketing year.
Exports for the same period were up 47 percent from last week at 20.0 million bushels. Wheat export sales were 48 percent of the USDA estimated total annual exports for the 2021/22 marketing year (June 1 to May 31), compared to the previous 5-year average of 55 percent.
December 2021 wheat futures closed at $7.34, down 21 cents since last Friday. December 2021 wheat futures traded between $7.31 and $7.63 this week. December wheat-to-corn price ratio was 1.38. Dec/Mar and Dec/Jul future spreads were 13 and 4 cents. March 2022 wheat futures closed at $7.47, down 19 cents since last Friday. March wheat-to-corn futures price ratio was 1.39.
Nationally, the Crop Progress report estimated winter wheat planted at 47 percent compared to 34 percent last week, 50 percent last year, and a 5-year average of 46 percent; and winter wheat emerged at 19 percent compared to 9 percent last week, 22 percent last year, and a 5-year average of 20 percent. In Tennessee, winter wheat planted was estimated at 16 percent compared to 11 percent last week, 10 percent last year, and a 5-year aver-age of 11 percent; and winter wheat emerged at 7 percent compared to 4 percent last week, 5 percent last year, and a 5-year average of 3 percent. New crop wheat cash prices at elevators and barge points ranged from $7.06 to $7.30. July 2022 wheat futures closed at $7.38, down 3 cents since last Friday. Downside price protection could be obtained by purchasing a $7.40 July 2022 Put Option costing 60 cents establishing a $6.80 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee