AgWatch


Price Ratios Favor Bit More Cotton, Corn Acreage This Year

DR. AARON SMITH

KNOXVILLE, TENN.
   Corn and soybeans were up; cotton was mixed; and wheat was down for the week. How do current harvest futures prices compare to the same time last year? On January 14: December 2015 corn futures were trading at $4.08 ½, 26 ½ cents higher than December 2016 corn futures ($3.82); November 2015 soybean futures were trading at $9.91 ¼, $1.01 higher than November 2016 soybean futures ($8.90 ¼); December 2015 cotton futures were trading at 63.01, 0.3 cents higher than December 2016 cotton futures (62.71); and July 2015 wheat futures were trading at $5.45 ¼, 64 ¾ cents higher than July 2016 wheat futures ($4.80 ½). All four harvest futures prices are down from a year ago. Additionally, the price ratios have changed, soybean-to-corn price ratio decreased from 2.43 to 2.33; wheat-to-corn price ratio decreased from 1.33 to 1.26; and cotton-to-corn price ratio increased from 0.15 to 0.16. Other factors, besides price ratios (i.e. input costs, crop rotation, local cropping alternatives, local pricing conditions etc.), will influence planted acreage for 2016, however at this point in time the price ratios, compared to last year, would tend to favor slightly more cotton and corn acreage and slightly less wheat and soybean acreage.
   This week the USDA released its January WASDE report.
   Corn: Domestic yield and supply were decreased 0.9 bu/acre and 43 million bushels, respectively. Use was decreased 60 million bushels (10 million for food, seed, and industrial use and 50 million for exports). The net domestic result was an increase in ending stocks of 17 million bushels (to 1.802 billion bushels) and stocks-to-use ratio increasing to 13.28%, the highest since the 2008/09 marketing year. Internationally, a 157 million bushel reduction in production in South Africa was the primary cause for foreign stocks decreasing 132 million bushels to 6.423 billion bushels.
   Soybeans: Domestic yield and harvested acreage were decreased 0.3 bu/acre and 600,000 acres, respectively. Use was decreased 27 million bushels (25 million in exports and 2 million in seed and residual). The net result was soybean ending stocks decreasing 25 million bushels to 440 million bushels. Internationally, increased domestic use in Argentina and China precipitated a reduction in foreign ending stocks of 96 million bushels to 2.474 billion bushels. No changes were made to production in Brazil or Argentina.
   Cotton: Domestic yield was increased 1 lb/acre and harvested acreage was decreased 70,000 acres, resulting in a net reduction in production of 90,000 bales. Foreign cotton stocks fell 1.63 million bales, primarily due to reductions in production for India (500,000), China (500,000), and Pakistan (800,000 bales).  Compared to last marketing year, the USDA now estimates global stocks at 102.86 million bales, down 9.21 million bales. Overall, cotton supplies are moving in the right direction however demand remains sluggish. Global stocks-to-use is currently estimated at 92 percent, as such dramatic price improvements remain unlikely for the near future.
   Wheat: The WASDE provided bearish adjustments to wheat with both domestic and foreign ending stocks increasing 30 and 50 million bushels, respectively. Global ending stocks are now estimated up over 700 million bushels from the last marketing year. For wheat, the WASDE report was overshadowed by the Winter Wheat Seedings report, which provided some bullish news. Winter wheat acreage was estimated at 36.609 million acres down 7.2 percent from 2015 (39.461 million acres). In Tennessee, winter wheat acreage was estimated at 400,000 acres down 55,000 acres from 2015.
   Corn
   March 2016 corn futures closed at $3.63 up 6 cents since last Friday. March 2016 corn futures traded between $3.49 and $3.63. Across Tennessee, average basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis, Northwest Barge Points, Northwest, Lower-middle, and Upper-middle Tennessee. Overall, basis for the week ranged from 11 under to 31 over the March futures contract with an average of 12 over at the end of the week. Ethanol production for the week ending January 8th was 1,003,000 barrels per day up 7,000 from last week. Ending ethanol stocks were 21.345 million barrels up 246,000 barrels from last week. Corn net sales reported by exporters from January 1st to 7th were above expectations with net sales of 26.3 million bushels for the 2015/16 marketing year. Exports for the same time period were up from last week at 25.1 million bushels. Corn export sales and commitments were 49 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 63 percent.
   May 2016 corn futures closed at $3.67 up 5 cents since last Friday. Mar/May and Mar/Sep future spreads were 4 cents and 14 cents, respectively. In Tennessee, September 2016 cash forward contracts averaged $3.62 with a range of $3.46 to $3.90. September 2016 corn futures closed at $3.77 up 3 cents since last Friday. Downside price protection could be obtained by purchasing a $3.90 December 2016 Put Option costing 32 cents establishing a $3.58 futures floor.
   Soybeans
   March 2016 soybean futures closed at $8.79 up 14 cents since last Friday. March 2016 soybean futures traded between $8.57 and $8.84. For the week, average soybean basis strengthened or remained unchanged at Memphis, Northwest Barge Points, Lower-middle, and Upper-middle Tennessee and weakened at Northwest Tennessee. Basis ranged from 1 over to 42 over the March futures contract at elevators and barge points. Average basis at the end of the week was 19 over the March futures contract. Net sales reported by exporters were within expectations with net sales of 41.4 million bushels for the 2015/16 marketing year and 0.004 million bushels for the 2016/17 marketing year. Exports for the same period were up from last week at 49.5 million bushels. Soybean export sales and commitments were 85 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 86 percent. March soybean-to-corn price ratio was 2.42 at the end of the week.
   May 2016 soybean futures closed at $8.78 up 10 cents since last Friday.  Mar/May and Mar/Nov future spreads were -1 cent and 6 cents, respectively. November/September 2016 soybean-to-corn price ratio was 2.35 at the end of the week. In Tennessee, October/November 2016 cash forward contracts averaged $8.68 with a range of $8.44 to $9.00 at elevators and barge points. November 2016 soybean futures closed at $8.85 up 7 cents since last Friday. Downside price protection could be achieved by purchasing a $9.00 November 2016 Put Option which would cost 57 cents and set an $8.43 futures floor.
   Cotton
   March 2016 cotton futures closed at 61.4 up 0.01 cents since last Friday. March 2016 cotton futures traded between 61.15 and 62.46 cents this week. Adjusted world price (AWP) decreased 0.7 cents to 46.9 cents per pound. Delta upland cotton spot price quotes for January 14th were 62.15 cents/lb (41-4-34) and 64.90 cents/lb (31-3-35). Net sales reported by exporters were up from last week with net sales of 171,000 bales for the 2015/16 marketing year and 7,800 bales for the 2016/17 marketing year. Exports for the same period were down from last week at 79,400 bales. Upland cotton export sales were 56 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 85 percent.
   May 2016 cotton futures closed at 61.9 down 0.16 cents since last Friday. Mar/May and Mar/Dec cotton futures spreads were 0.49 cents and 1.06 cents, respectively. December 2016 cotton futures closed at 62.47 down 0.48 cents since last Friday. Downside price protection could be obtained by purchasing a 63 cent December 2016 Put Option costing 4.17 cents establishing a 58.83 cent futures floor.
   Wheat
   March 2016 wheat futures closed at $4.73 down 5 cents since last Friday. March 2016 wheat futures traded between $4.62 and $4.84 this week. March wheat-to-corn price ratio was 1.30. Net sales reported by exporters were within expectations with net sales of 10.1 million bushels for the 2015/16 marketing year and 0.6 million bushels for the 2016/17 marketing year. Exports for the same period were up from last week at 20.3 million bushels. Wheat export sales were 74 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 79 percent. In Memphis, old crop cash wheat traded between $4.63 and $4.76 for the week. Mar/May and Mar/Jul future spreads were 5 cents and 11 cents, respectively.
   May 2016 wheat futures closed at $4.78 down 5 cents since last Friday. In Tennessee, June/July cash forward contracts averaged $4.74 with a range of $4.40 to $5.13. July 2016 wheat futures closed at $4.84 up 6 cents since last Friday. Downside price protection could be obtained by purchasing a $4.90 July 2016 Put Option costing 35 cents establishing a $4.55 futures floor. ∆
   DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee

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