Will Soybean Prices Continue Upward Trajectory?

DR. AARON SMITH

KNOXVILLE, TENN.
   Corn was down; cotton, soybeans, and wheat were up for the week. December corn peaked at $4.09 on Thursday before retreating to a close of $3.81 on Friday. Concerns about drier weather in Brazil and the sharp rally in the soybean complex drove prices up at the beginning of the week. Soybeans continued their upward trajectory at the beginning of the week; however, by Thursday the rally started to falter and on Friday soybean contracts gave back between 15-30 cents. The start of next week will be very important if soybeans are to hold its increases from the past two weeks. If large investment buying dries up (or reverses course) we will likely see a dramatic decrease in soybean prices. Given how quickly the rally has occurred it is likely that soybean prices have overshot their underlying market fundamentals (the degree of damage to the Argentine soybean crop is speculative at this point). Two factors that will be closely watched are the damage to the soybeans crop caused by extreme wet weather in Argentina and the end of the week strengthening of the USD. If the USD reverses course from its long term downward trend (started at the beginning of 2016) it could provide additional headwinds for US exports and prices for all agricultural commodities. It is likely that volatility in the soybean complex will continue into next week. December cotton futures have made their way back above 60 cents. Improved exports will be needed to meet the USDA’s marketing year target of 9.5 million bales. Currently, exports total 8.76 million bales. July wheat followed corn and soybeans up at the beginning of the week and then retreated to close the week at $4.74. Record global stocks will continue to limit price improvements for wheat. As such, rallies like the beginning of last week should be viewed as selling opportunities.  
   Corn
   May 2016 corn futures closed at $3.71 down 7 cents since last Friday. May 2016 corn futures traded between $3.70 and $4.02 for the week. Across Tennessee, average basis (cash price-nearby futures price) strengthened or remained unchanged at Northwest, Memphis, Northwest Barge Points, Upper-middle, and Lower-middle Tennessee. Overall, basis for the week ranged from 5 under to 46 over the May futures contract with an average of 13 over at the end of the week. Ethanol production for the week ending April 15 was 939,000 barrels per day up 1,000 from last week. Ending ethanol stocks were 22.046 million barrels down 271,000 barrels from last week. Corn net sales reported by exporters from April 8-14 were above expectations with net sales of 47.4 million bushels for the 2015/16 marketing year and 4.8 million bushels for the 2016/17 marketing year. Exports for the same time period were up from last week at 50.5 million bushels. Corn export sales and commitments were 83 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 90 percent.
   July 2016 corn futures closed at $3.75 down 7 cents since last Friday. May/Jul and May/Sep future spreads were 4 cents and 4 cents, respectively. In Tennessee, September 2016 cash forward contracts averaged $3.82 with a range of $3.59 to $4.14. September 2016 corn futures closed at $3.75 down 7 cents since last Friday. This week’s Crop Progress report estimated corn planted at 13 percent compared to 4 percent last week, 7 percent last year, and a 5-year average of 8 percent. In Tennessee, this week’s Crop Progress report indicated corn planting at 35 percent compared to 17 last week, 6 percent last year, and a 5-year average of 28 percent. 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 $9.87 up 31 cents since last Friday. May 2016 soybean futures traded between $9.49 and $10.34. For the week, average soybean basis weakened or remained unchanged at Northwest Barge Points, Northwest, Lower-middle, and Upper-middle Tennessee and strengthened at Memphis. Basis ranged from 25 under to 12 over the May futures contract at elevators and barge points. Average basis at the end of the week was 3 under the May futures contract. Net sales reported by exporters were within expectations with net sales of 15.0 million bushels for the 2015/16 marketing year and net sales of 12.5 million bushels for the 2016/17 marketing year. Exports for the same period were down from last week at 12.5 million bushels. Soybean export sales and commitments were 98 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 98 percent. May soybean-to-corn price ratio was 2.66 at the end of the week.
   July 2016 soybean futures closed at $9.96 up 32 cents since last Friday.  May/Jul and May/Nov future spreads were 9 cents and -4 cents, respectively. November/September 2016 soybean-to-corn price ratio was 2.62 at the end of the week. In Tennessee, October/November 2016 cash forward contracts averaged $9.79 with a range of $9.37 to $10.08 at elevators and barge points. November 2016 soybean futures closed at $9.83 up 17 cents since last Friday. Downside price protection could be achieved by purchasing a $10.00 November 2016 Put Option which would cost 61 cents and set a $9.39 futures floor.
   Cotton 
   May 2016 cotton futures closed at 63.08 up 3.05 cents since last Friday. May 2016 cotton futures traded between 59.61 and 64.42 cents this week. Adjusted world price (AWP) increased 1.08 cents to 50.53 cents per pound. Delta upland cotton spot price quotes for April 21st were 64.19 cents/lb (41-4-34) and 66.94 cents/lb (31-3-35). Net sales reported by exporters were up from last week with net sales of 104,800 bales for the 2015/16 marketing year and 20,200 bales for the 2016/17 marketing year. Exports for the same period were up from last week at 200,200 bales. Upland cotton export sales were 87 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 100 percent.
   July 2016 cotton futures closed at 63.69 up 3.67 cents since last Friday. May/Jul and May/Dec cotton futures spreads were 0.61 cents and -0.56 cents, respectively. December 2016 cotton futures closed at 62.52 up 3.31 cents since last Friday. This week’s Crop Progress report estimated cotton planted at 7 percent compared to 5 percent last week, 7 percent last year, and a 5-year average of 10 percent. Downside price protection could be obtained by purchasing a 63 cent December 2016 Put Option costing 3.52 cents establishing a 59.48 cent futures floor.
   Wheat
   May 2016 wheat futures closed at $4.67 up 8 cent since last Friday. May 2016 wheat futures traded between $4.60 and $5.10 this week. May wheat-to-corn price ratio was 1.26. Net sales reported by exporters were within expectations with net sales of 10.8 million bushels for the 2015/16 marketing year and net sales of 12.5 million bushels for the 2016/17 marketing year. Exports for the same period were up from last week at 12.4 million bushels. Wheat export sales were 94 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 102 percent. In Memphis, old crop cash wheat traded between $4.62 and $4.99 for the week. May/Jul and May/Sept future spreads were 7 cents and 16 cents, respectively.
   July 2016 wheat futures closed at $4.74 up 7 cents since last Friday. In Tennessee, June/July cash forward contracts averaged $4.90 with a range of $4.41 to $5.32. Nationally, winter wheat condition was estimated at 57 percent good-to-excellent and 9 percent poor-to-very poor; winter wheat headed at 12 percent compared to 4 percent last week, 13 percent last year, and a 5-year average of 15 percent; and spring wheat planted at 27 percent compared to 13 percent last week, 31 percent last year, and a 5-year average of 19 percent. In Tennessee, winter wheat condition was reported as 82 percent good-to-excellent and 2 percent poor-to-very poor; winter wheat jointing at 70 percent compared to 55 percent last week, 59 percent last year, and a 5-year average of 72 percent; and winter wheat headed 2 percent compared to 1 percent last year and a 5-year average of 19 percent. Downside price protection could be obtained by purchasing a $4.75 July 2016 Put Option costing 20 cents establishing a $4.55 futures floor. September 2016 wheat futures closed at $4.83 up 6 cents since last Friday. ∆
   DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee

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