AgWatch


Corn Exports Lag, Causing High Stock Fears

DR. AARON SMITH

KNOXVILLE, TENN.
   Corn, cotton, and soybeans were up; wheat was even for the week. December corn has moved sideways for the past two weeks bouncing between $3.83 and $3.90. Total corn exports continue to lag behind the pace required to meet the USDA’s projection of 1.65 billion bushels for the current marketing year. If exports are 10 percent lower (which is the current pace) than USDA projections that could result in ending stocks for the 2015/16 marketing year exceeding 2 billion bushels for the first time since the 2004/05 marketing year, assuming no other modifications to demand or supply for the current year). November soybeans closed up for the 4th consecutive week and is within striking distance of the 4 month high of $9.26 ½ on December 7th. Two primary factors have contributed to the price appreciation: 1) the unexpected strengthening of the Brazilian Real relative to the USD and 2) stronger than expected demand. This rally may be short lived as next week the USDA releases the March 31st Prospective Plantings and Quarterly Grain Stocks Reports. In 2013, 2014, and 2015 on the day the reports were released soybean harvest futures contracts, for that production year, decreased 26 ¼, 22 ¾, and 14 ¼ cents, respectively.  The question is will the 2016 reports provide bearish news or provide some validation of strong demand, thus maintaining/fueling the current rally? We will find out when the report is released on Thursday March 31, 2016. December cotton futures closed at 57.35 cents 3.19 cents higher than the contract low on Feb 29. I don’t think we will add many cotton acres from last year’s record low in Tennessee with price prospects so abysmal. July wheat peaked on March 14 at $4.86 ½ and has moved lower since closing the week at $4.70 ¾. There are still concerns about cold weather in major wheat producing areas, however for now it appears that those fears have been abated.
   Corn
   May 2016 corn futures closed at $3.70 up 3 cents since last Friday. May 2016 corn futures traded between $3.65 and $3.71 for the week. Across Tennessee, average basis (cash price-nearby futures price) weakened or remained unchanged at Memphis, Northwest Barge Points, Northwest, Lower-middle, and Upper-middle Tennessee. Overall, basis for the week ranged from 4 under to 36 over the May futures contract with an average of 11 over at the end of the week. Ethanol production for the week ending March 18th was 995,000 barrels per day down 4,000 from last week. Ending ethanol stocks were 22.519 million barrels down 334,000 barrels from last week. Corn net sales reported by exporters from March 11th to 18th were below expectations with net sales of 31.6 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 up from last week at 39.2 million bushels. Corn export sales and commitments were 74 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 83 percent.
   July 2016 corn futures closed at $3.74 up 3 cents since last Friday. May/Jul and May/Sep future spreads were 4 cents and 9 cents, respectively. In Tennessee, September 2016 cash forward contracts averaged $3.65 with a range of $3.47 to $3.94. September 2016 corn futures closed at $3.79 up 3 cents since last Friday. Downside price protection could be obtained by purchasing a $3.90 December 2016 Put Option costing 34 cents establishing a $3.56 futures floor.
   Soybeans 
   May 2016 soybean futures closed at $9.10 up 13 cents since last Friday. May 2016 soybean futures traded between $8.92 and $9.14. For the week, average soybean basis weakened at Northwest Barge Points and Lower-middle Tennessee and strengthened or remained unchanged at Memphis, Northwest, and Upper-middle Tennessee. Basis ranged from 29 under to 13 over the May futures contract at elevators and barge points. Average basis at the end of the week was 1 over the May futures contract. Net sales reported by exporters were within expectations with net sales of 15.1 million bushels for the 2015/16 marketing year and net sales of 1.1 million bushels for the 2016/17 marketing year. Exports for the same period were down from last week at 20.8 million bushels. Soybean export sales and commitments were 95 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 96 percent. May soybean-to-corn price ratio was 2.46 at the end of the week.
   July 2016 soybean futures closed at $9.17 up 13 cents since last Friday.  May/Jul and May/Nov future spreads were 7 cents and 12 cents, respectively. November/September 2016 soybean-to-corn price ratio was 2.43 at the end of the week. In Tennessee, October/November 2016 cash forward contracts averaged $9.08 with a range of $8.84 to $9.30 at elevators and barge points.  November 2016 soybean futures closed at $9.22 up 13 cents since last Friday. Downside price protection could be achieved by purchasing a $9.40 November 2016 Put Option which would cost 58 cents and set an $8.82 futures floor. 
   Cotton 
   May 2016 cotton futures closed at 57.72 up 0.56 cents since last Friday. May 2016 cotton futures traded between 57.06 and 58.58 cents this week. Adjusted world price (AWP) increased 0.08 cents to 44.84 cents per pound. Delta upland cotton spot price quotes for March 23rd were 58.39 cents/lb (41-4-34) and 61.14 cents/lb (31-3-35). Net sales reported by exporters were down from last week with net sales of 84,400 bales for the 2015/16 marketing year and 52,100 bales for the 2016/17 marketing year. Exports for the same period were up from last week at 214,900 bales. Upland cotton export sales were 81 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 98 percent.
   July 2016 cotton futures closed at 57.58 up 0.52 cents since last Friday. May/Jul and May/Dec cotton futures spreads were -0.14 cents and -0.37 cents, respectively. December 2016 cotton futures closed at 57.35 up 0.45 cents since last Friday. Downside price protection could be obtained by purchasing a 58 cent December 2016 Put Option costing 3.75 cents establishing a 54.25 cent futures floor.
   Wheat
   May 2016 wheat futures closed at $4.63 the same as last Friday. May 2016 wheat futures traded between $4.58 and $4.72 this week. May wheat-to-corn price ratio was 1.25. Net sales reported by exporters were within expectations with net sales of 13.6 million bushels for the 2015/16 marketing year and 4.7 million bushels for the 2016/17 marketing year. Exports for the same period were down from last week at 13.1 million bushels. Wheat export sales were 90 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 98 percent. In Memphis, old crop cash wheat traded between $4.58 and $4.62 for the week. May/Jul and May/Sept future spreads were 7 cents and 17 cents, respectively.
   July 2016 wheat futures closed at $4.70 the same as last Friday. In Tennessee, June/July cash forward contracts averaged $4.68 with a range of $4.31 to $4.90. Downside price protection could be obtained by purchasing a $4.80 July 2016 Put Option costing 29 cents establishing a $4.51 futures floor. September 2016 wheat futures closed at $4.80 the same as last Friday. ∆
   DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee

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