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Production, Carryover Could Cause Price Drop
DR. AARON SMITH
KNOXVILLE, TENN.
Wheat and corn were down; cotton and soybeans were mixed for the week. The June WASDE report provided only minor changes for corn, soybeans, cotton, and wheat. Old crop corn ending stocks were left unchanged at 1.146 billion. Ending stocks will most likely be revised on the June 30th Quarterly Grain Stocks report. New crop estimates were left unchanged. The Acreage report later this month could see upward revisions in both acres planted and yield due to good planting conditions and favorable weather this spring. If production and carry over are increased at the end of the month we could see prices decrease substantially. Old crop soybean ending stocks were decrease an additional 5 million bushels. Strong domestic crush and exports have lowered the estimated carry over; this has been partially mitigated from increased import estimates. Similar to corn, soybean acreage and yield were left unchanged on this report and will be revisited at the end of the month. It is very likely we could see upward acreage revisions for both corn and soybeans. Old crop wheat ending stocks increased 10 million bushels. The 2013/14 wheat marketing year finished May 31st with estimated exports of 1.18 billion bushels. New crop wheat production was lowered highlighted by a 26 million bushel decrease in Hard Red wheat. New Crop wheat ending stocks increased 34 million bushels due to higher carryover and lower use estimates. Global wheat ending stocks for the 2014/15 marketing year were increased 44 million bushels. New crop cotton estimated harvest acreage was revised up due to rain in the southern plains that has potentially reduced abandonment. The estimated increase in production of 500,000 bales was captured primarily in domestic ending stocks. Projected global cotton stocks were increased over 1 million bales for the end of the upcoming marketing year. Complete analysis of the WASDE report can be accessed at: http://economics.ag.utk.edu/outlook.html.
Corn
July 2014 corn futures closed at $4.47 down 12 cents from last week with support at $4.40 and resistance at $4.52. Across Tennessee basis (cash price- nearby future price) strengthened or remained unchanged at Memphis, Northwest Barge Points, and Upper-middle Tennessee and weakened in Northwest and Lower-middle Tennessee. Overall basis for the week ranged from 1 under to 30 over the July futures contract with an average of 15 over at the end of the week. Corn net sales reported by exporters from May 30th to June 5th were within expectations at 16.1 million bushels for the 2013/14 marketing year and within expectations at 4.2 million bushels for the 2014/15 marketing year. Exports for the same time period were up from last week at 42.1 million bushels. Corn export sales and commitments are 96 percent of the USDA estimated total annual exports for the 2013/14 marketing year (September 1 to August 31) compared to a 5-year average of 96 percent. Ethanol production for the week ending June 6th was 944,000 barrels per day up 6,000 barrels per day. Ending ethanol stocks were 18.422 million barrels up 172,000 barrels. July/Sept and July/Dec future spreads were -4 cents and -0 cents, respectively.
September 2014 corn futures closed at $4.43 down 13 cents from last week with support at $4.32 and resistance at $4.45. December futures closed at $4.47. Nationally, the June 9th Crop Progress report estimated corn emerged at 92 percent compared to 80 percent last week, 83 percent last year and a 5-year average of 90 percent; and corn condition at 75 percent good to excellent 4 percent poor to very poor. In Tennessee, corn emerged at 98 percent compared to 94 percent last week, 93 percent last year, and a 5-year average of 95 percent; and corn condition at 74 percent good to excellent and 7 percent poor to very poor. This week September and December 2014 corn futures prices traded between $4.35 and $4.56. September cash forward contracts at elevators and barge points for the week averaged $4.32 with a range of $4.06 to $4.68. Downside price protection could be obtained by purchasing a $4.45 September 2014 Put Option costing 22 cents establishing a $4.23 futures floor.
Soybeans
July 2014 soybean futures closed at $14.25 down 32 cents for the week with support at $14.03 and resistance at $14.39. Nearby soybean to corn price ratio was 3.19 at the end of the week. For the week, average soybean basis weakened or remained unchanged at Memphis, Northwest Barge Points, Northwest, and Upper-middle Tennessee and strengthened in Lower-middle Tennessee. Basis ranged from 17 under to 43 over the July futures contract at elevators and barge points. Average basis at the end of the week was 8 over the July futures contract. Net sales reported by exporters were above expectations with net sales of 3.2 million bushels for the 2013/14 marketing year and within expectations for the 2014/15 marketing year with net sales of 14.8 million bushels. Exports for the same period were down from last week at 5.4 million bushels. Soybean export sales and commitments are 103% of the USDA estimated total annual exports for the 2013/14 marketing year (September 1 to August 31), compared to a 5-year average of 101 percent. August 2014 soybean futures were trading at $13.69. July/Aug and July/Nov future spreads were -56 cents and -204 cents.
November 2014 soybean futures closed at $12.21 up 3 cents from last week with support at $11.96 and resistance at $12.36. The Crop Progress report estimated soybean planting at 87 percent compared to 78 percent last week, 69 percent last year, and a 5-year average of 81 percent; soybeans emerged at 71 percent compared to 50 percent last week, 46 percent last year, and a 5-year average of 62 percent; and soybean condition at 74 percent good to excellent 4 percent poor to very poor. In Tennessee, soybeans planted were estimated at 63 percent compared to 54 percent last week, 45 percent last year, and a 5-year average of 61 percent; soybeans emerged at 43 percent compared to 32 percent last week, 27 percent last year, and a 5-year average of 42 percent; and soybean condition at 79 percent good to excellent 5 percent poor to very poor. This week November 2014 soybean futures traded between $12.04 and $12.32. Harvest soybean to corn price ratio was 2.67. November cash forward contracts averaged $12.23 with a range of $11.91 to $12.46. Downside price protection could be achieved by purchasing a $12.40 November 2014 Put Option which would cost 69 cents and set an $11.71 futures floor.
Cotton
July 2014 cotton futures closed at 86.98 up 2.20 cents for the week with support at 84.82 and resistance at 88.18. Cotton adjusted world price (AWP) decreased 0.87 cents to 68.57 cents. Net sales reported by exporters were down from last week at 40,800 bales of upland cotton for the 2013/14 marketing year and 74,700 bales for the 2014/15 marketing year. Exports for the same period were up from last week at 182,700 bales. Cotton export sales and commitments are 104 percent of the USDA estimated total annual exports for the 2013/14 marketing year (August 1 to July 31), compared to a 5-year average of 108 percent. Oct 2014 cotton futures are trading at 77.75. July/Oct and July/Dec future spreads were -9.23 cents and -9.23 cents.
December 2014 cotton futures closed at 77.75 down 0.25 cents for the week with support at 76.96 and resistance at 78.3. The Crop Progress report estimated cotton planting at 89 percent compared to 74 percent last week, 87 percent last year, and a 5-year average of 91 percent; cotton squaring at 8 percent compared to 5 percent last week, 6 percent last year, and a 5-year average of 10 percent; and cotton condition at 50 percent good to excellent 13 percent poor to very poor. In Tennessee, cotton planted was estimated at 96 percent compared to 94 percent last week, 93 percent last year, and a 5-year average of 95 percent; cotton squaring at 8 percent compared to 1 percent last week, 0 percent last year and 2 percent for a 5-year average; and cotton condition at 74 percent good to excellent 4 percent poor to very poor. December cotton futures traded between 76.05 and 77.9 cents this week. Downside price protection could be obtained by purchasing a 78 cent December 2014 Put Option costing 3.95 cents establishing a 74.05 cent futures floor.
Wheat
July 2014 wheat futures closed at $5.86 down 32 cents for the week with support at $5.77 and resistance at $5.99. Export sales of 57 million bushels were carried over from the 2013/14 marketing year which ended May 31st. Net sales reported by exporters were within expectations at 20.9 million bushels for the 2014/15 marketing year. Exports for the same period were down from last week at 12.1 million bushels. Wheat export sales are 26 percent of the USDA estimated total annual exports for the 2014/15 marketing year (June 1 to May 31), compared to a 5-year average of 20 percent. The Crop Progress report estimated winter wheat condition at 30 percent good to excellent and 44 percent poor to very poor; winter wheat headed was 86 percent compared to 79 percent last week, 81% last year, and a 5-year average of 85 percent; and wheat harvested at 9 percent compared to 5 percent last year and a 5-year average of 12 percent. In Tennessee, winter wheat condition was estimated at 81 percent good to excellent and 2 percent poor to very poor; winter wheat headed was estimated at 99 percent compared to 98 percent last week, 100 percent last year, and a 5-year average of 100 percent; wheat turning color at 81 percent compared to 88 percent last year and a 5-year average of 95 percent; wheat mature at 29 percent compared to 9 percent last year and a 5-year average of 43 percent; and wheat harvested at 1 percent compared to 0 percent last year and a 5-year average of 21 percent. July wheat futures traded between $5.83 and $6.26 this week. July wheat to corn price ratio was 1.31. In Tennessee, June/July cash forward contracts averaged $5.86 with a range of $5.39 to $6.15 at elevators and barge points. July/Sept and July/Jul future spreads were 10 cents and 65 cents.
September 2014 wheat futures closed at $5.96 down 36 cents from last week with support at $5.88 and resistance at $6.09. The Crop Progress report estimated spring wheat planted at 95 percent compared to 88 percent last week, 86 percent last year, and a 5-year average of 93 percent; spring wheat emerged at 80 percent compared to 67 percent last week, 70 percent last year, and a 5-year average of 82 percent; and spring wheat condition at 71 percent good to excellent 4 percent poor to very poor. September wheat to corn price ratio was 1.35. July 2015 wheat futures closed at $6.51. Downside price protection could be obtained by purchasing a $6.60 July 2015 Put Option costing 60 cents establishing a $6.00 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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