Corn Belts Clash With High/Low Expected Yields

DR. AARON SMITH

KNOXVILLE, TENN.
   Soybeans and wheat were down; cotton and corn were up for the week. December corn has bounced back from the August 12th low of $3.57 ½. Corn yields continue to be the subject of great debate as several crop tours have substantially different state yield estimates than the August 12th USDA Crop Production report. It is generally accepted that the Western Corn Belt will have record-to-near record yields while the Eastern Corn Belt will have yields that are below trend. Whether the good yields in the west offset the poorer yields in the east will determine if the USDA’s estimated national average yield of 168.8 bu/acre is high or low. November 2015 soybeans set a new contract low this week at $8.88/bu. Estimated record harvested acreage and the second highest national average yield will continue to exert downward pressure on markets as we move towards harvest. Compounding the domestic issues in the soybean markets are the economic issues in China, the large South American supply (and anticipated plantings this fall), currency devaluations in China and Brazil, and cheaper prices being available at foreign locations. December cotton has bounced back from the contract low of 61.20 cents/lb due to a bullish August 12th USDA report. While the 5 cent increase from the low is positive for producers, it may be very difficult to get futures prices much higher than 68 cents prior to harvest as global stocks and limited selling year-to-date could dampen price rallies. One positive for Tennessee producers is the estimated record average state yield of 991 lbs/acre, 77 lbs above trend yield. July 16 wheat futures are over $1.20 lower than the June 30th high. Wheat prices continue to be hampered by large global supplies and a high US dollar.
   In September, soybean planting in Brazil’s major production regions will commence. Many analysts are predicting a decrease in fertilizer demand from Brazil –in spite of greater acreage– due to lower soybean prices and a weaker Brazilian Real. As mentioned in past comments, the Brazilian Real has depreciated substantially relative to the USD dollar, while this is positive for Brazilian producers selling soybeans to foreign buyers it is detrimental when they are purchasing inputs priced in USD. Reduced South American fertilizer demand combined with low domestic commodity prices and negative margins will likely pull fertilizer prices lower, how quickly and how much lower has yet to be determined.
   Corn
   September 2015 corn futures closed at $3.65 up 1 cent from last week. This week, September 2015 corn futures prices traded between $3.61 and $3.72. Across Tennessee, average basis (cash price-nearby futures price) weakened or remained unchanged at Upper-middle, Northwest, and Lower-middle Tennessee and strengthened at Memphis and Northwest Barge Points. Overall, average basis for the week ranged from 29 under to 20 over the September futures contract with an average of 7 under at the end of the week. Ethanol production for the week ending August 14th was 965,000 barrels per day the same as last week. Ending ethanol stocks were 18.561 million barrels down 32,000 barrels from last week. Corn net sales reported by exporters from August 7th to 13th were above expectations with net sales of 11.1 million bushels for the 2014/15 marketing year and 22.7 million bushels for the 2015/16 marketing year. Exports for the same time period were up from last week at 36.1 million bushels. Corn export sales and commitments were 101 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 106 percent. Sep/Dec and Sep/Mar future spreads were 12 cents and 23 cents, respectively.
   December 2015 corn futures closed at $3.77 up 2 cents since last week. In Tennessee, September 2015 cash forward contracts averaged $3.54 with a range of $3.36 to $3.90. Nationally, this week’s Crop Progress report estimated corn condition at 69 percent good-to-excellent and 10 percent poor-to-very poor; corn dough or beyond at 71 percent compared to 50 percent last week, 68 percent last year, and a 5-year average of 66 percent; corn dented or beyond at 21 percent compared to 9 percent last week, 20 percent last year, and a 5-year average of 28 percent. In Tennessee, corn condition was estimated at 84 percent good-to-excellent and 2 percent poor-to-very poor; corn dough or beyond at 93 percent compared to 86 percent last week, 91 percent last year, and a 5-year average of 94 percent; and corn dented or beyond at 52 percent compared to 29 percent last week, 49 percent last year, and a 5-year average of 70 percent. Downside price protection could be obtained by purchasing a $3.80 December 2015 Put Option costing 22 cents establishing a $3.58 futures floor.
   Soybeans
   September 2015 soybean futures closed at $9.07 down 18 cents since last week. This week September 2015 soybean futures traded between $9.04 and $9.33. September soybean-to-corn price ratio was 2.48 at the end of the week. For the week, average soybean basis strengthened at Northwest Barge Points, Memphis, and Lower-middle Tennessee and weakened in Northwest and Upper-middle Tennessee. Basis ranged from 38 under to 43 over the September futures contract at elevators and barge points. Average basis at the end of the week was 7 over the September futures contract. Net sales reported by exporters were within expectations with net sales of 1.7 million bushels for the 2014/15 marketing year and 28.8 million bushels for the 2015/16 marketing year. Exports for the same period were up from last week at 14.7 million bushels. Soybean export sales and commitments were 102 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 104 percent. Sep/Nov and Sep/Jan future spreads were -15 cents and -11 cents, respectively.
   November 2015 soybean futures closed at $8.92 down 24cents from last week. Nov/Dec 2015 soybean-to-corn price ratio was 2.37. In Tennessee, October/November 2015 cash forward contracts averaged $9.02 with a range of $8.65 to $9.41 at elevators and barge points. Nationally, this week’s Crop Progress report estimated soybean condition at 63 percent good-to-excellent and 11 percent poor-to-very poor; soybeans blooming at 93 percent compared to 88 percent last week, 95 percent last year, and a 5-year average of 95 percent; and soybeans setting pods at 79 percent compared to 69 percent last week, 81 percent last year, and a 5-year average of 79 percent. In Tennessee, soybean condition was estimated at 80 percent good-to-excellent and 4 percent poor-to-very poor; soybeans blooming at 89 percent compared to 82 percent last week, 90 percent last year, and a 5-year average of 91 percent; and soybeans setting pods were estimated at 71 percent compared to 61 percent last week, 73 percent last year, and a 5-year average of 75 percent. Downside price protection could be achieved by purchasing a $9.00 November 2015 Put Option which would cost 37 cents and set an $8.63 futures floor. January 2016 soybean futures closed at $8.96 down 25 cents since last week.
   Cotton
   December 2015 cotton futures closed at 66.82 up 0.87 cents since last week. December 2015 cotton futures traded between 65.67 and 67 cents this week. Adjusted world price (AWP) increased 2.52 cents to 49.46 cents per pound. Delta upland cotton spot price quotes for August 20th were 65.41 to 68.16 cents/lb. Net sales reported by exporters were down from last week with net sales of 52,800 bales for the 2015/16 marketing year and 2,400 bales for the 2016/17 marketing year. Exports for the same period were up from last week at 110,600 bales. Upland cotton export sales were 28 percent of the USDA estimated total annual exports for the 2015/16 marketing year (August 1 to July 31), compared to a 5-year average of 44 percent. Nationally, this week’s Crop Progress report estimated cotton condition at 55 percent good-to-excellent and 9 percent poor-to-very poor; cotton setting bolls at 73 percent compared to 68 percent last week, 87 percent last year, and 5-year average of 88 percent; and cotton bolls opening at 10 percent compared to 7 percent last week, 11 percent last year, and a 5-year average of 12 percent. In Tennessee, cotton condition was estimated at 81 percent good-to-excellent and 1 percent poor-to-very poor; cotton setting bolls at 79 percent compared to 73 percent last week, 88 percent last year, and a 5-year average of 90 percent; and cotton bolls opening at 4 percent compared to 1 percent last week, 7 percent last year, and a 5-year average of 5 percent. Downside price protection could be obtained by purchasing a 67 cent December 2015 Put Option costing 2.65 cents establishing a 64.35 cent futures floor.
   March 2016 cotton futures closed at 66.21 up 0.75 cents since last week. Dec/Mar and Dec/Dec cotton futures spreads were -0.61 cents and -2.02 cents, respectively. December 2016 cotton futures closed at 64.8 up 0.56 cents since last week.
   Wheat
   September 2015 wheat futures closed at $4.98 down 8 cents since last week. September wheat futures traded between $4.91 and $5.09 this week. September wheat-to-corn price ratio was 1.36. In Tennessee, August cash prices averaged $4.58 with a range of $4.30 to $4.81 at elevators and barge points. Net sales reported by exporters were within expectations with net sales of 11.6 million bushels for the 2015/16 marketing year. Exports for the same period were up from last week at 22.3 million bushels. Wheat export sales were 37 percent of the USDA estimated total annual exports for the 2015/16 marketing year (June 1 to May 31), compared to a 5-year average of 43 percent. Nationally, this week’s Crop Progress report estimated spring wheat condition at 70 percent good-to-excellent and 8 percent poor-to-very poor; and spring wheat harvested at 53 percent compared to 28 percent last week, 15 percent last year, and a 5-year average of 31 percent. December 2015 wheat futures closed at $5.02 down 8 cents since last week. Sep/Dec and Sep/Jul future spreads were 4 cents and 13 cents, respectively.
   July 2016 wheat futures closed at $5.11 down 11 cents since last week. In Memphis, July cash forward contracts ranged from $4.88 to $4.99. Downside price protection could be obtained by purchasing a $5.10 July 2016 Put Option costing 43 cents establishing a $4.67 futures floor. ∆
   DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee

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