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Prices On Corn, Soybeans, Wheat Rise; Cotton Mixed
DR. AARON SMITH
KNOXVILLE, TENN.
Soybeans, corn, and wheat were up; cotton was mixed for the week. The government shutdown has been resolved, at least temporarily, and the USDA will commence issuing weekly Crop Progress and Export Sales Reports next week in addition to other daily, weekly, and monthly reports. The October 11th WASDE and Crop Production reports have been canceled, the next scheduled release is on November 8th. The November 8th WASDE report should provide confirmation of improved harvest yields for soybeans (41-43 bu/acre) and corn (156-159 bu/acre) as well as confirm the harvested acreage adjusted from the FSA prevented planting numbers released in September. It is unlikely that the November WASDE will provide a substantial move in corn, soybean, cotton, or wheat prices as much more will be known about actual harvest numbers than would have been in the October report, although I’m sure there will be a surprise or two. The DJIA was up for the week but until a longer term solution in Washington is agreed upon look for markets to proceed cautiously.
Corn
December 2013 corn futures closed at $4.41 up 8 cents from last week with support at $4.38 and resistance at $4.48. Ethanol production for the week ending October 4th was 868,000 barrels per day down 7,000 barrels per day. Ending ethanol stocks were 15.39 million barrels down 119,000. Corn had a modest upward move this week partially due to rising wheat prices and corn harvest weather concerns. This move will most likely by short in duration, so those looking to price additional bushels may wish to take advantage of this week’s move. Most fundamentals point to corn prices continuing to decrease as the size of the 2013 corn crop is larger than originally anticipated and limited production risk remains. For those producers looking to store grain into 2014, it is strongly advisable to price bushels prior to storage, as if prices decrease producers will expose themselves to storage costs and lower prices. March 2014 corn futures are trading at $4.54 up 8 cents from last week. Dec 13/Mar 14 and Dec 13/Sep 14 future spreads were 13 cents and 34 cents.
September 2014 corn futures closed at $4.75 up 7 cents for the week with support at $4.73 and resistance at $4.80. Producers should consider pricing some 2014 production or look to establish a harvest price floor. There is a great deal of production uncertainty for the 2014 crop, however excess supply from 2013 (estimated near 2 billion bushels in ending stocks) will continue to provide downward price pressure in 2014 and if 2014 production is at or above average, prices will undoubtedly be substantially lower than current harvest levels. Planting intentions for corn are likely to be lower than this past year however due to the prevented planting acres in 2013 an argument could be made that harvested acreage in 2014 could be close to 2013. Producers should keep in mind that regional basis will most likely not be as strong which will affect farm level prices received. Establishing a price floor on 2014 production that is above breakeven price provides certainty that production costs will be covered. Downside price protection could be obtained by purchasing a $4.80 September 2014 Put Option costing 45 cents establishing a $4.35 futures floor.
Soybeans
November 2013 soybean futures closed at $12.91 up 25 cents for the week with support at $12.66 and resistance at $13.09. Soybeans bounced back from last week’s low on Friday and briefly broke over the $13.00/bu level. Pricing soybeans above $13 is strongly encouraged as soybean markets will be damped by low corn prices. Historically, the soybean and corn price ratio is between 2.07 and 2.93:1 (currently the price ratio is 2.9:1), this is not to say the prices cannot diverge more however a substantial divergence is unlikely. January 2014 soybean futures are trading at $12.89 up 23 cents from last week. Nov 13/Jan 14 and Nov 13/Nov 14 future spreads were -2 cents and -120 cents.
November 2014 soybean futures closed at $11.71 up 13 cents for the week with support at $11.59 and resistance at $11.83. An increase in soybean acres for 2014 seems to be priced into the 2014 November futures contract. Brazil is in the process of planting 70-72 million acres of soybeans (3-5% more than last year). These Brazilian soybeans will be harvested and marketed from March 2014 onward, so when examining opportunities in deferred futures contracts make sure to account for the possibility of a record Brazilian soybean crop. Ongoing logistical issues in South America do lend some support to the desirability of purchasing North American soybeans for large importers that require timely delivery. Domestically, producers looking at current 2014 harvest futures contract prices for corn of $4.75/bu (with many anticipating downward movement) and cotton of 80.05 cents/lb may turn to soybeans and/or wheat/soybean double cropping as an alternative. As such, planting intentions will be closely monitored in the soybean markets with a substantial increase in acreage looking likely. A lot can change between now and planting/harvest 2014 but looking at establishing a floor on soybeans above breakeven should be considered. Downside price protection could be achieved by purchasing an $11.80 November 2014 Put Option which would cost 88 cents and set a $10.92 futures floor.
Cotton
December 2013 cotton futures closed at 83.11 down 0.26 cents for the week with support at 82.09 and resistance at 84.79. Cotton adjusted world price (AWP) decreased 1.44 cents to 68.61 cents. Cotton prices continue to be range bound at 82 to 88 cents/lb. This trading range is likely to continue until something significant changes in Chinese cotton policy. Domestically, harvest has been slowed by rains this week. Tennessee producers are eagerly awaiting drier conditions that should occur this coming week so they can get back in the field. Due to late planting/replanting cotton harvest is 2-4 weeks behind 5-year averages. Carrying un-priced cotton into 2014 should be approached cautiously as December prices have less downside risk at this time than deferred future contracts. March 2014 cotton futures are trading at 84.3 up 0.08 cents from last week. Dec 13/Mar 14 and Dec 13/Dec 14 future spreads were 1.19 cents and -3.06 cents.
December 2014 cotton futures closed at 80.05 up 0.57 cents for the week with support at 79.17 and resistance at 81.07. December 2014 cotton futures are up over 3 cents from the end of August. Significant downside risk in 2014 cotton is present due to Chinese cotton reserves and potential changes in their reserve and import quota policy. This has led to deferred future contract prices being depressed. Prior to planting the 2014 cotton crop producers should look for price assurance on the majority of their cotton acres as the potential exists for a significant downward move in prices. While I don’t anticipate the bottom falling out of the cotton market, as the Chinese have very little to gain by flooding the market with surplus cotton and plummeting prices, I do think that getting 2014 harvest farm level prices, prior to planting, greater than 83 cents may be challenging. Downside price protection could be obtained by purchasing an 81 cent December 2014 Put Option costing 6.29 cents establishing a 74.71 cent futures floor.
Wheat
December 2013 wheat futures closed at $7.05 up 13 cents for the week with support at $6.78 and resistance at $7.20. Wheat prices continued their upward trend breaking through resistance at the $7.00 level due to strong exports from countries with production worries. Weather has impeded Brazil’s wheat harvest and has led to further quality concerns for their crop. Chinese wheat imports continue to remain strong as they are anticipated to import near record amounts of wheat this marketing year. March 2014 wheat futures are trading at $7.14 up 13 cents from last week. Dec 13/Mar 14 and Dec13/Jul 14 future spreads were 9 cents and -3 cents.
July 2014 wheat futures closed at $7.02 up 10 cents for the week with support at $6.79 and resistance at $7.15. Winter wheat planting in the U.S. is estimated at 75 percent complete. Pricing or establishing a price floor for July wheat near $7.00/bu should be considered. Producers considering double cropping soybeans and wheat for the upcoming year may want to consider establish price floors for one or both commodities, as profits could be assured at current price levels. Downside price protection could be obtained by purchasing a$7.10 July 2014 Put Option costing 63 cents establishing a $6.47 futures floor.∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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