Heavy Rains In Production Areas Spur Hopes For High Yields

DR. AARON SMITH

KNOXVILLE, TENN.
   Corn and soybeans were down; cotton and wheat were up for the week. In spite of large gains in harvest futures on Friday (14 and 33 cents for Dec corn and Nov soybeans, respectively), corn and soybeans still finished the week down 5 cents and 80 cents, respectively. Beneficial rainfall covered most of the key U.S. production regions the past two weeks alleviating concerns about potential dry weather and dramatically reducing the likelihood of lower yields. The volatility in grain and oilseed futures markets that we have seen recently has likely not passed, as such producers are cautioned to not be reactionary sellers and continue to look for selling opportunities should the market rally. As mentioned last week, the soybean-to-corn price ratio is well above the typical relationship of 2.5 (last Friday the harvest ratio closed at 3.10 and today at 2.92). An opportunity still exists to take advantage of the ratio returning closer to 2.5 however for those that are risk averse, using the March 2017 ratio (currently 2.8) may be a more palatable alternative as there remains a tremendous amount of volatility surrounding the nearby and harvest futures contracts.
   Since September 15, 2014 (662 calendar days), cotton futures have traded between 55 and 68 cents, roughly a 13 cent trading range. This trend, while remarkably consistent, is well below the price required for most producers to achieve a profit. However, this past week December 2016 cotton futures achieved a new 52 week high at 66.75 cents, continuing an upward trend that began back in March. The primary driver has been tightening global stocks outside of China which has led to strong demand for high quality machine picked cotton. Additional positive supply and demand factors include: global production decreasing from 127.6 million bales in 2011/12 to 98.1 million bales in 2015/16; a reduction in total global stocks of over 10 million bales from the previous to current marketing year; and steady to possibly increasing cotton use for the current and next marketing year (108-110 million bales). While several challenges and unknowns remain it now seems that cotton may take a run at 70 cents in the not too distant future.
   Corn
   September 2016 corn futures closed at $3.55 down 5 cents since last Friday. September 2016 corn futures traded between $3.39 and $3.56 for the week. Across Tennessee, average basis (cash price-nearby futures price) strengthened at Northwest, Memphis, and Lower-middle Tennessee and weakened at Northwest Barge Points and Upper-middle Tennessee. Overall, basis for the week ranged from 6 under to 41 over the September futures contract with an average of 9 over at the end of the week. Ethanol production for the week ending July 1 was 984,000 barrels per day down 19,000 from last week. Ethanol stocks were 21.557 million barrels, up 390,000 barrels. Corn net sales reported by exporters from June 23-30 were below expectations with net sales of 14.6 million bushels for the 2015/16 marketing year and 17.4 million bushels for the 2016/17 marketing year. Exports for the same time period were down from last week at 50.0 million bushels. Corn export sales and commitments were 101 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 102 percent.
   Sep/Dec and Sep/Mar future spreads were 7 and 15 cents, respectively. This week’s Crop Progress report estimated corn condition at 75 percent good-to-excellent and 5 percent poor-to-very poor; and corn silking at 15 percent compared to 6 percent last week, 10 percent last year, and a 5-year average of 13 percent. In Tennessee, this week’s Crop Progress report indicated corn condition at 70 percent good-to-excellent and 8 percent poor-to-very poor; and corn silking at 55 percent compared to 24 percent last week, 46 percent last year, and a 5-year average of 54 percent. In Tennessee, September 2016 cash forward contracts averaged $3.44 with a range of $3.26 to $3.65. December 2016 corn futures closed at $3.62 down 5 cents since last Friday. Downside price protection could be obtained by purchasing a $3.70 December 2016 Put Option costing 27 cents establishing a $3.43 futures floor. March 2017 corn futures closed at $3.70 down 6 cents since last Friday.
   Soybeans 
   August 2016 soybean futures closed at $10.83 down 81 cents since last Friday. August 2016 soybean futures traded between $10.45 and $11.49. For the week, average soybean basis strengthened at Memphis, Northwest Barge Points, and Lower-middle Tennessee and weakened at Northwest and Upper-middle Tennessee. Basis ranged from 39 under to 42 over the July futures contract at elevators and barge points. Average basis at the end of the week was 6 under the August futures contract. Net sales reported by exporters were within expectations with net sales of 23.4 million bushels for the 2015/16 marketing year and net sales of 21.5 million bushels for the 2016/17 marketing year. Exports for the same period were down from last week at 7.2 million bushels. Soybean export sales and commitments were 107 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 102 percent. August/September soybean-to-corn price ratio was 3.05 at the end of the week.
   September 2016 soybean futures closed at $10.68 down 80 cents since last Friday. Aug/Sep and Aug/Nov future spreads were -15 cents and -26 cents, respectively. This week’s Crop Progress report estimated soybean condition at 70 percent good-to-excellent and 7 percent poor-to-very-poor; and soybeans blooming at 22 percent compared to 9 percent last week, 17 percent last year, and a 5-year average of 7 percent. In Tennessee, this week’s Crop Progress report indicated soybean condition at 73 percent good-to-excellent and 6 percent poor-to-very poor; soybeans emerged at 92 percent compared to 78 percent last week, 81 percent last year, and a 5-year average of 82 percent; and soybeans blooming at 15 percent compared to 6 percent last week, 10 percent last year, and a 5-year average of 14 percent. November/December 2016 soybean-to-corn price ratio was 2.92 at the end of the week. In Tennessee, October/November 2016 cash forward contracts averaged $10.55 with a range of $9.90 to $11.02 at elevators and barge points. November 2016 soybean futures closed at $10.57 down 80 cents since last Friday. Downside price protection could be achieved by purchasing an $10.60 November 2016 Put Option which would cost 63 cents and set a $9.97 futures floor.
   Cotton 
   October 2016 cotton futures closed at 65.92 up 0.81 cents since last Friday. Adjusted world price (AWP) increased 0.29 cents to 56.40 cents per pound. Delta upland cotton spot price quotes for July 7 were 64.75 cents/lb (41-4-34) and 67.50 cents/lb (31-3-35). Net sales reported by exporters were up from last week with net sales of 201,900 bales for the 2015/16 marketing year and 128,400 bales for the 2016/17 marketing year. Exports for the same period were up from last week at 307,100 bales. Upland cotton export sales were 106 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 108 percent.
   This week’s Crop Progress report estimated cotton condition at 56 percent good-to-excellent and 8 percent poor-to-very poor; cotton squaring at 42 percent compared to 29 percent last week, 44 percent last year, and a 5-year average of 47 percent; and cotton setting bolls at 11 percent compared to 6 percent last week, 9 percent last year, and a 5-year average of 11 percent. In Tennessee, this week’s Crop Progress report indicated cotton condition at 79 percent good-to-excellent and 3 percent poor-to-very poor; cotton squaring at 50 percent compared to 40 percent last week, 45 percent last year, and a 5-year average of 49 percent; and cotton setting bolls at 6 percent compared to 1 percent last week, 3 percent last year, and a 5-year average of 3 percent. December 2016 cotton futures closed at 65.81 up 0.82 cents since last Friday. Dec/Oct and Dec/Mar cotton futures spreads were 0.11 cents and 0.12 cents, respectively. December 2016 cotton futures traded between 64.25 and 66.75 cents this week. Downside price protection could be obtained by purchasing a 66 cent December 2016 Put Option costing 2.75 cents establishing a 63.25 cent futures floor. March 2017 cotton futures closed at 65.93 up 0.69 cents since last Friday.
   Wheat
   In Tennessee, July cash prices averaged $4.14 with a range of $3.87 to $4.30, for the week. Nationally, winter wheat condition was estimated at 62 percent good-to-excellent and 9 percent poor-to-very poor; winter wheat harvested at 58 percent compared to 45 percent last week, 50 percent last year, and a 5-year average of 55 percent; spring wheat condition at 72 percent good-to-excellent and 6 percent poor-to-very poor; and spring wheat headed at 74 percent compared to 56 percent last week, 68 percent last year, and a 5-year average of 45 percent. In Tennessee, winter wheat condition was reported as 84 percent good-to-excellent and 2 percent poor-to-very poor; winter wheat mature at 99 percent compared to 97 percent last week, 98 percent last year, and a 5-year average of 99 percent; and winter wheat harvested at 94 percent compared to 84 percent last week, 91 percent last year, and a 5-year average 89 percent.
   September 2016 wheat futures closed at $4.35 up 5 cents since last Friday. September 2016 wheat futures traded between $4.15 and $4.39 this week. September wheat-to-corn price ratio was 1.23. Net sales reported by exporters were above expectations with net sales of 30.3 million bushels for the 2016/17 marketing year. Exports for the week were up from last week at 19.6 million bushels. Wheat export sales were 35 percent of the USDA estimated total annual exports for the 2016/17 marketing year (June 1 to May 31), compared to a 5-year average of 31 percent. Sep/Dec and Sep/Jul future spreads were 21 cents and 59 cents, respectively. December 2016 wheat futures closed at $4.56 up 6 cents since last Friday. December wheat-to-corn price ratio was 1.26. July 2017 wheat futures closed at $4.94 up 6 cents since last Friday. Downside price protection could be obtained by purchasing a $5.00 July 2017 Put Option costing 48 cents establishing a $4.52 futures floor. ∆
   DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
MidAmerica Farm Publications, Inc
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