Harvest Price Ratio May Change Depending On Planted Acres Estimates

DR. AARON SMITH

KNOXVILLE, TENN.
   Corn and cotton were up; soybeans and wheat were down for the week. This week corn futures prices strengthened relative to soybeans. Currently, the nearby soybean to corn futures price ratio is 2.47; compared to a harvest price ratio of 2.33. The harvest price ratio has the potential to further decrease if, on March 31st, the USDA planted acreage estimates contain more than expected planted acres of soybeans and less than expected planted acres of corn. Of course the potential exists for the USDA to provide a surprise on Tuesday. Tennessee producers may be interested in the current cash forward contract soybean to corn price ratios. As of Thursday, the harvest soybean to corn price ratios were reported as 2.38, 2.44, 2.29, 2.39, and 2.37 in the five reporting regions (Northwest, Upper-middle, Lower-middle, Northwest Barge Points, and Memphis). In addition to price ratios amongst commodities, producers should also be considering their expected individual farm yields and input costs by commodity when finalizing their planting decisions.
   Monday, the USDA announced the deadline for producers and/or landowners to make their yield update, base acre reallocation, and commodity program decisions (ARC-CO/ARC-I/PLC) was extended one week, to April 7, 2015. Producers and landowners that have not made decisions should take advantage of the deadline extension and contact their local FSA office to sign up. Producers and landowners who have made decisions should take this opportunity to reevaluate their decisions, using the most recent price and yield data, and make any changes deemed necessary before April 7th. Note: The USDA will release their Prospective Plantings and Quarterly Grain Stocks reports on March 31st so it may be prudent to wait until April 1st to reevaluate the current price environment as these reports can provide significant market movements.
   Corn
   May 2015 corn futures closed at $3.91 up 6 cents a bushel since last week. Across Tennessee average basis (cash price- nearby future price) remained unchanged at Northwest Barge Points, Memphis, Lower-middle, and Upper-middle Tennessee and weakened in Northwest Tennessee. Overall average basis for the week ranged from 10 under to 25 over the May futures contract with an average of 12 over at the end of the week. Ethanol production for the week ending March 20th was 953,000 barrels per day up 6,000 barrels per day from last week. Ending ethanol stocks were 21.317 million barrels up 497,000 barrels from last week. This week May 2015 corn futures prices traded between $3.85 and $3.97. May/Jul and May/Sep future spreads were 8 cents and 15 cents, respectively.
   July 2015 corn futures closed at $3.99 up 7 cents from last week. Corn net sales reported by exporters March 13th to 19th were within expectations with net sales of 17.1 million bushels for the 2014/15 marketing year and 1.1 million bushels for the 2015/16 marketing year. Exports for the same time period were up from last week at 42 million bushels. Corn export sales and commitments were 81 percent of the USDA estimated total annual exports for the 2014/15 marketing year (September 1 to August 31) compared to a 5-year average of 81 percent. September 2015 cash forward contracts averaged $4.00 with a range of $3.74 to $4.28. September 2015 futures closed at $4.06 up 6 cents from last week. Downside price protection could be obtained by purchasing a $4.10 September 2015 Put Option costing 32 cents establishing a $3.78 futures floor.
   Soybeans
   May 2015 soybean futures closed at $9.67 down 6 cents since last week. May soybean to corn price ratio was 2.47 at the end of the week. For the week, average soybean basis strengthened or remained unchanged at Memphis, Northwest Barge Points, Upper-middle, and Lower-middle Tennessee and weakened in Northwest Tennessee. Basis ranged from 18 under to 34 over the May futures contract at elevators and barge points. Average basis at the end of the week was 18 over the May futures contract. This week May 2015 soybean futures traded between $9.65 and $9.00.
   July 2015 soybean futures closed at $9.72 down 6 cents since last week. Net sales reported by exporters were above expectations with net sales of 18.6 million bushels for the 2014/15 marketing year and 8.1 million bushels for the 2015/16 marketing year. Exports for the same period were up from last week at 28 million bushels. Soybean export sales and commitments were 100 percent of the USDA estimated total annual exports for the 2014/15 marketing year (September 1 to August 31), compared to a 5-year average of 95 percent. May/Jul and May/Nov future spreads were 5 cent and -19 cents. October/November 2015 cash forward contracts averaged $9.47 with a range of $9.25 to $9.70 at elevators and barge points. Nov/Sep 2015 soybean to corn price ratio was 2.33. November 2015 futures closed at $9.48 down 8 cents from last week. Downside price protection could be achieved by purchasing a $9.60 November 2015 Put Option which would cost 63 cents and set an $8.97 futures floor. 
   Cotton
   May 2015 cotton futures closed at 63.55 up 0.73 cents since last week. Cotton adjusted world price (AWP) increased 2.12 cents from last week to 48.47 cents. May 2015 cotton futures traded between 62.36 and 64.55 cents this week.
   July 2015 cotton futures closed at 63.87 up 0.47 cents since last week. Net sales reported by exporters were down from last week with net sales of 177,600 bales for the 2014/15 marketing year and net sales of 21,000 bales for the 2015/16 marketing year. Exports for the same period were down from last week at 290,300 bales. Upland cotton export sales were 99% of the USDA estimated total annual exports for the 2014/15 marketing year (August 1 to July 31), compared to a 5-year average of 96%. May/July and May/Dec futures spread were 0.32 cents and 1.13 cents. December 2015 cotton futures closed at 64.68 up 0.62 cents since last week. Downside price protection could be obtained by purchasing a 65 cent December 2015 Put Option costing 4.03 cents establishing a 60.97 cent futures floor.
   Wheat
   May 2015 wheat futures closed at $5.07 down 23 cents since last week. May wheat futures traded between $4.98 and $5.40 this week. May wheat to corn price ratio was 1.30. May/July and July/Sept future spreads were 5 cents and 9 cents, respectively. In Memphis, old crop cash wheat traded between $4.59 and $4.94 last week.
   July 2015 wheat futures closed at $5.12 down 21 cents since last week. Net sales reported by exporters were below expectations at 3.8 million bushels for the 2014/15 marketing year and 2.9 million bushels for the 2015/16 marketing year. Exports for the same period were up from last week at 18.3 million bushels. Wheat export sales were 93 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 97 percent. June/July 2015 cash forward contracts averaged $5.18 with a range of $4.45 to $5.53 at elevators and barge points. Downside price protection could be obtained by purchasing a $5.20 July 2015 Put Option costing 35 cents establishing a $4.85 futures floor.  ∆
   DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee

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