Corn Exports Lag Well Behind USDA Projections

DR. AARON SMITH

KNOXVILLE, TENN.
   Soybeans were up; cotton and wheat were down; and corn was mixed for the week. On Thursday morning, March corn set a new contract low of $3.62 ½, before bouncing back on Thursday afternoon and Friday, closing down 1 cent for the week. Corn exports continue to lag well behind USDA projections at 17 percent (297.5 million bushels) of the 1.75 billion bushels projected for the 2015/16 marketing year. The five-year average export pace would have 25 percent of the marketing year total (437.5 million bushels) exported by this week. This approximately 140 million-bushel gap should necessitate a drop in exports on the USDA’s January or February WASDE report. Similar to corn, soybeans started the week down and then rallied Thursday and Friday to close up 22 cents (January contract). Unlike corn, accumulated exports of soybeans for the 2015/16 marketing year are at 48 percent (823.2 million bushels exported year-to-date) compared to a five year average of 45 percent. Total U.S. exports are projected at 1.715 billion bushels, down 128 million from the 2014/15 marketing year. The worrisome component for soybean exports, and domestic prices, is the lack of outstanding sales (ie. future exports) which are currently behind last year’s pace and the five year average by 24 percent and 14 percent, respectively. This dramatic difference in exports versus outstanding sales highlights the tug-of-war between strong global demand for soybeans and the potential of abundant supplies from South America in early spring 2016. With the record soybean acreage in South America the weather will ultimately be the deciding factor in soybean prices. If South American weather is conducive to soybean production domestic prices will decrease. If production in South America falters export purchases will continue from the U.S. and prices will increase. The last three months cotton futures have consolidated their trading range to 61.5 to 65 cents. While a move out of this range, to the high side, is likely, it probably will not occur until later January or February. July wheat challenged the $5.10 price level before falling back below $5.00 on Friday. Wheat faces many of the same issues as corn, weak export demand, due to a high USD, and high global and domestic supplies. A significant rally in grains in the near future seems unlikely.
   Corn
   March 2016 corn futures closed at $3.74 down 1 cent since last week. This week, March 2016 corn futures traded between $3.62 and $3.79. Across Tennessee, average basis (cash price-nearby futures price) strengthened at Memphis, Northwest Barge Points, Northwest, Lower-middle, and Upper-middle Tennessee. Overall, basis for the week ranged from 38 under to 30 over the March futures contract with an average of 9 over at the end of the week. Ethanol production for the week ending December 11th was 1,000,000 barrels per day up 7,000 from last week. Ending ethanol stocks were 20.322 million barrels up 493,000 barrels from last week. Corn net sales reported by exporters from December 4th to 10th were below expectations with net sales of 22.8 million bushels for the 2015/16 marketing year and 3.9 million bushels for the 2016/17 marketing year. Exports for the same time period were down from last week at 19.5 million bushels. Corn export sales and commitments were 42 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 57 percent.
   May 2016 corn futures closed at $3.80 the same as last week. Mar/May and Mar/Sep future spreads were 6 cents and 15 cents, respectively. In Tennessee, September 2016 cash forward contracts averaged $3.77 with a range of $3.51 to $4.04. September 2016 corn futures closed at $3.89 up 1 cent since last week. Downside price protection could be obtained by purchasing a $4.00 December 2016 Put Option costing 33 cents establishing a $3.67 futures floor.
   Soybeans
   January 2016 soybean futures closed at $8.92 up 22 cents since last week. This week January 2016 soybean futures traded between $8.54 and $8.93. For the week, average soybean basis weakened or remained unchanged at Northwest Barge Points, Lower-middle, and Upper-middle Tennessee, and strengthened in Memphis and Northwest Tennessee. Basis ranged from 15 under to 30 over the January futures contract at elevators and barge points. Average basis at the end of the week was 11 over the January futures contract. Net sales reported by exporters were below expectations with net sales of 32.6 million bushels for the 2015/16 marketing year and 5.0 million bushels for the 2016/17 marketing year. Exports for the same period were down from last week at 57.1 million bushels. Soybean export sales and commitments were 75 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 80 percent.
   March 2016 soybean futures closed at $8.92 up 19 cents since last week. March soybean-to-corn price ratio was 2.39 at the end of the week. Jan/Mar and Jan/Nov future spreads were 0 cents and 15 cents, respectively. November/September 2016 soybean-to-corn price ratio was 2.33 at the end of the week. In Tennessee, October/November 2016 cash forward contracts averaged $8.71 with a range of $8.40 to $9.04 at elevators and barge points. November 2016 soybean futures closed at $9.07 up 17 cents from last week. Downside price protection could be achieved by purchasing a $9.20 November 2016 Put Option which would cost 66 cents and set an $8.54 futures floor.
   Cotton
   March 2016 cotton futures closed at 63.69 down 0.02 cents since last week. March 2016 cotton futures traded between 62.87 and 64 cents this week. Adjusted world price (AWP) decreased 1.18 cents to 47.86 cents per pound. Delta upland cotton spot price quotes for December 17th were 62.99 to 65.74 cents/lb. Net sales reported by exporters were up from last week with net sales of 99,500 bales for the 2015/16 marketing year and 12,100 bales for the 2016/17 marketing year. Exports for the same period were down from last week at 91,900 bales. Upland cotton export sales were 51 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 79 percent.
   May 2016 cotton futures closed at 64.46 down 0.03 cents since last week. Mar/May and Mar/Dec cotton futures spreads were 0.77 cents and 1.27 cents, respectively. December 2016 cotton futures closed at 64.96 down 0.2 cents since last week. Downside price protection could be obtained by purchasing a 65-cent December 2016 Put Option costing 4.29 cents establishing a 60.71 cent futures floor.
   Wheat
   March 2016 wheat futures closed at $4.86 down 4 cents since last week. March 2016 wheat futures traded between $4.72 and $4.99 this week. March wheat-to-corn price ratio was 1.30. Net sales reported by exporters were within expectations with net sales of 11.8 million bushels for the 2015/16 marketing year. Exports for the same period were up from last week at 12.2 million bushels. Wheat export sales were 69 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 74 percent. In Memphis, old crop cash wheat traded between $4.73 and $4.84 for the week. Mar/May and Mar/Jul future spreads were 7 cents and 13 cents, respectively.
   May 2016 wheat futures closed at $4.93 down 3 cents since last week. In Tennessee, June/July cash forward contracts averaged $4.89 with a range of $4.45 to $5.25. July 2016 wheat futures closed at $4.99 down 1 cent since last week. Downside price protection could be obtained by purchasing a $5.00 July 2016 Put Option costing 33 cents establishing a $4.67 futures floor. ∆
   DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee

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