If Trend Persists, Further Corn Futures Prices Will Dip

DR. ARRON SMITH

KNOXVILLE, TENN.
   Corn was mixed; soybeans, cotton, and wheat were down for the week. Harvest continues to progress in Tennessee. Corn is almost finished and soybeans should be over two thirds done by the end of the weekend. December 2015 corn futures continue to trade between $3.70 and $4.00. Failure to hold the key support level of $3.70 could see further deterioration in futures prices and challenge the contract low of $3.57 ½, established on August 12th. In October, Tennessee cash prices have held up reasonably well with a price range of $3.33 to $4.13 and an average of $3.69 reported at elevators and barge points. This compares favorably with last year’s October price range and average of $2.62-$3.79 and $3.20, respectively.
   Soybean futures prices continue to be very difficult to forecast. Domestic and export demand have remained reasonably strong in spite of challenging external forces (strong US dollar, global economic uncertainty etc.). Additionally, there has been a propensity for the USDA to overestimate the size of the soybean carryover from one marketing year to the next, leading some to speculate that the 2015/16 estimated ending stocks of 425 million bushels (October WASDE) will shrink, perhaps substantially, thus, providing fuel for a bullish price outlook. On the other side of the coin are back-to-back domestic crops of almost 4 billion bushels and four consecutive years of record Brazilian production culminating in this year’s, USDA projected, crop of 3.67 billion bushels. Supplies of that magnitude would likely push prices substantially lower than today’s levels. Currently, November 2015 soybeans continue to trade near $9.00 with a harvest trading range of $8.53-$9.20. In Tennessee, October cash soybean prices have been between $8.49 and $9.41 with an average of just under $9.00. Unlike corn, this is substantially below last year’s October range and average of $8.65-$10.87 and $9.65, respectively. 
   For the past 465-calendar days (with a few exceptions), cotton has traded between 60 and 68 cents. Unfortunately, futures prices in this range translate into negative margins for most producers in Tennessee. A break out of this range before the New Year seems less and less likely, however a move to the upper end of the range in January-February remains a possibility. Producers that need to sell at harvest may want to consider buying call options to participate in an early 2016 rally should one occur.
   Corn
   December 2015 corn futures closed at $3.79 up 3 cents since last week. This week, December 2015 corn futures traded between $3.72 and $3.83. Across Tennessee, average basis (cash price-nearby futures price) strengthened or remained unchanged at Northwest, Memphis, Upper-middle, and Lower-middle Tennessee and weakened at Northwest Barge Points. Overall, basis for the week ranged from 41 under to 20 over the December futures contract with an average of 12 under at the end of the week. Ethanol production for the week ending October 16th was 951,000 barrels per day down 2,000 from last week. Ending ethanol stocks were 18.872 million barrels down 84,000 barrels from last week. Corn net sales reported by exporters from October 9th to 15th were below expectations with net sales of 9.8 million bushels for the 2015/16 marketing year. Exports for the same time period were down from last week at 16.1 million bushels. Corn export sales and commitments were 25 percent of the USDA estimated total annual exports for the 2015/16 marketing year (September 1 to August 31) compared to a 5-year average of 43 percent. Nationally, this week’s Crop Progress report estimated corn condition at 68 percent good-to-excellent and 10 percent poor-to-very poor; corn mature at 98 percent compared to 94 percent last week, 92 percent last year, and a 5-year average of 96 percent; and corn harvested at 59 percent compared to 42 percent last week, 30 percent last year, and a 5-year average of 54 percent. In Tennessee, corn condition was estimated at 85 percent good-to-excellent and 2 percent poor-to-very poor; corn mature at 99 percent compared to 99 percent last week, 99 percent last year, and a 5-year average of 100 percent; and corn harvested at 93 percent compared to 87 percent last week, 87 percent last year, and a 5-year average of 89 percent. Downside price protection could be obtained by purchasing a $3.80 December 2015 Put Option costing 8 cents establishing a $3.72 futures floor.
   In Tennessee, January 2016 cash forward contracts averaged $3.80 with a range of $3.58 to $4.00. March 2016 corn futures closed at $3.88 up 1 cent since last week. Dec/Mar and Dec/Sep future spreads were 9 cents and 17 cents, respectively. September 2016 corn futures closed at $3.96 down 1 cent since last week.
   Soybeans
   November 2015 soybean futures closed at $8.95 down 3 cents since last week. This week November 2015 soybean futures traded between $8.89 and $9.13. November/December soybean-to-corn price ratio was 2.36 at the end of the week. For the week, average soybean basis strengthened at Lower-middle Tennessee and weakened at Northwest Barge Points, Northwest, Memphis, and Upper-middle Tennessee. Basis ranged from 35 under to 17 over the November futures contract at elevators and barge points. Average basis at the end of the week was 8 under the November futures contract. Net sales reported by exporters were above expectations with net sales of 74.6 million bushels for the 2015/16 marketing year and 0.06 million bushels for the 2016/17 marketing year. Exports for the same period were up from last week at 85.6 million bushels. Soybean export sales and commitments were 56 percent of the USDA estimated total annual exports for the 2015/16 marketing year (September 1 to August 31), compared to a 5-year average of 62 percent. Nationally, this week’s Crop Progress report estimated soybeans dropping leaves at 94 percent compared to 92 percent last week, 96 percent last year, and a 5-year average of 96 percent; and soybeans harvested at 77 percent compared to 62 percent last week, 51 percent last year, and a 5-year average of 68 percent. In Tennessee, soybean condition was estimated at 75 percent good-to-excellent and 7 percent poor-to-very poor; soybeans dropping leaves at 94 percent compared to 88 percent last week, 90 percent last year, and a 5-year average of 90 percent; and soybeans harvested at 51 percent compared to 34 percent last week, 29 percent last year, and a 5-year average of 44 percent.
   In Tennessee, January 2015 cash forward contracts averaged $8.99 with a range of $8.71 to $9.24 at elevators and barge points. January 2016 soybean futures closed at $8.96 down 6 cents since last week.  Nov/Jan and Nov/Nov future spreads were 1 cent and 2 cents, respectively. November/September 2016 soybean-to-corn price ratio was 2.27 at the end of the week. November 2016 soybean futures closed at $8.97 down 5 cents from last week. Downside price protection could be achieved by purchasing a $9.00 November 2016 Put Option which would cost 62 cents and set an $8.38 futures floor.
   Cotton
   December 2015 cotton futures closed at 62.76 down 1.09 cents since last week. December 2015 cotton futures traded between 62.37 and 64.69 cents this week. Adjusted world price (AWP) increased 1.67 cents to 48.37 cents per pound. Delta upland cotton spot price quotes for October 22nd were 61.77 to 64.52 cents/lb. Net sales reported by exporters were up from last week with net sales of 96,900 bales for the 2015/16 marketing year and 9,300 bales for the 2016/17 marketing year. Exports for the same period were down from last week at 61,200 bales. Upland cotton export sales were 37 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 58 percent. Nationally, this week’s Crop Progress report estimated cotton condition at 46 percent good-to-excellent and 16 percent poor-to-very poor; cotton bolls opening at 94 percent compared to 89 percent last week, 85 percent last year, and 5-year average of 89 percent; and cotton harvested at 31 percent compared to 22 percent last week, 28 percent last year, and a 5-year average of 32 percent. In Tennessee, cotton condition was estimated at 80 percent good-to-excellent and 2 percent poor-to-very poor; cotton bolls opening at 93 percent compared to 87 percent last week, 87 percent last year, and a 5-year average of 91 percent; and cotton harvested at 25 percent compared to 14 percent last week, 19 percent last year, and a 5-year average of 43 percent. Downside price protection could be obtained by purchasing a 63 cent December 2015 Put Option costing 1.32 cents establishing a 61.68 cent futures floor.
   March 2016 cotton futures closed at 62.6 down 1.1 cents since last week. Dec/Mar and Dec/Dec cotton futures spreads were -0.16 cents and 0.51 cents, respectively. December 2016 cotton futures closed at 63.27 down 0.49 cents since last week.
   Wheat
   December 2015 wheat futures closed at $4.90 down 2 cents since last week. December wheat futures traded between $4.83 and $5.00 this week. December wheat-to-corn price ratio was 1.29. Net sales reported by exporters were within expectations with net sales of 13.1 million bushels for the 2015/16 marketing year and 0.06 million bushels for the 2016/17 marketing year. Exports for the same period were down from last week at 7.8 million bushels. Wheat export sales were 53 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 59 percent. Dec/Mar and Dec/Jul future spreads were 7 cents and 13 cents, respectively.
   March 2016 wheat futures closed at $4.97 down 3 cents from last week. Nationally, this week’s Crop Progress report estimated winter wheat planted at 76 percent compared to 64 percent last week, 75 percent last year, and a 5-year average of 77 percent; and winter wheat emerged at 49 percent compared to 33 percent last week, 54 percent last year, and a 5-year average of 49 percent. In Tennessee, winter wheat planted was estimated at 37 percent compared to 19 percent last week, 24 percent last year, and a 5-year average of 24 percent; and winter wheat emerged at 11 percent compared to 2 percent last week, 10 percent last year, and a 5-year average of 5 percent. In Tennessee, June/July cash forward contracts averaged $4.82 with a range of $4.00 to $5.12. July 2016 wheat futures closed at $5.03 down 5 cents since last week. Downside price protection could be obtained by purchasing a $5.10 July 2016 Put Option costing 36 cents establishing a $4.74 futures floor. ∆
   DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee

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