AgWatch


Large Corn, Soybean Crops In South America Affects U.S. Balance Sheet

DR. AARON SMITH

KNOXVILLE, TENN.
   Thursday’s WASDE report projected a record large soybean crop for Brazil and increased production estimates for South American corn production. Minor adjustments were made to the U.S. domestic balance sheet. The decrease in soybean exports was unexpected at this juncture, however record South American production and a strengthening USD, relative the Brazilian Real, provide some justification for USDA changes.
   For corn, compared to last month’s report, domestic supply was unchanged; feed and residual was decreased 50 million bushels and ethanol was increased 50 million (resulting in no changed in domestic use); U.S. ending stocks were unchanged; and foreign stocks were increased 123 million bushels. Currently, global ending stocks are projected at 8.688 billion bushels (2.32 billion in the U.S. and 6.368 billion in foreign stocks), up 4.6 percent from the previous marketing year.
   For soybeans, compared to last month’s report, domestic supply was unchanged; domestic crushings were increased 10 million bushels; exports were decreased 25 million bushels; U.S. ending stocks were increased 15 million bushels; and foreign stocks were increased 75 million bushels. Currently, global ending stocks are projected at 3.043 billion bushels (435 million in the U.S. and 2.608 billion in foreign reserves), up 8.1 percent from the previous marketing year.
   For cotton, compared to last month’s report, domestic production was increased 270,000 bales (due to a yield increase of 14 lbs/acre); exports were increased 0.5 million bales; U.S. ending stocks were decreased 0.3 million bales; and foreign stocks were increased 0.88 million bales. Currently, global ending stocks are projected at 90.48 million bales (4.5 million in the U.S., 48.9 million in China, and 37.08 million in the rest of the world), down 6.8 percent from the previous marketing year.
   For wheat, compared to last month’s report, imports were decreased 10 million bushels; U.S. ending stocks were decreased 10 million bushels; and foreign stocks were increased 60 million bushels. Currently, global ending stocks are projected at 9.184 billion bushels (1.129 billion in the U.S. and 8.055 billion in foreign stocks), up 4 percent from the previous marketing year.
   A complete summary of the USDA’s March WASDE report for corn, soybeans, cotton, and wheat is available on our Monthly Crop Outlook page.
   Corn
   May 2017 corn futures closed at $3.64 down 16 cents since last Friday. For the week, May 2017 corn futures traded between $3.62 and $3.83. Across Tennessee, average basis (cash price-nearby futures price) weakened or remained unchanged at Memphis, Northwest Barge Points, Northwest, Upper-middle, and Lower-middle Tennessee. Overall, basis for the week ranged from 20 under to 30 over the May futures contract with an average of 8 over at the end of the week. Corn net sales reported by exporters from February 24-March 2 were within expectations with net sales of 29.2 million bushels for the 2016/17 marketing year and 3.7 million bushels for the 2017/18 marketing year. Exports for the same time period were down from last week at 57.2 million bushels. Corn export sales and commitments were 78 percent of the USDA estimated total annual exports for the 2016/17 marketing year (September 1 to August 31) compared to a 5-year average of 76 percent. Ethanol production for the week ending March 3 was 1.022 million barrels per day down 12,000 from last week. Ethanol stocks were 22.856 million barrels, down 235,000 barrels. May/Jul and May/Dec future spreads were 8 and 22 cents, respectively. July 2017 corn futures closed at $3.72 down 13 cents since last Friday.
   In Tennessee, September 2017 cash forward contracts averaged $3.76 with a range of $3.63 to $4.01. December 2017 corn futures closed at $3.86 down 13 cents since last Friday. Downside price protection could be obtained by purchasing a $3.90 December 2017 Put Option costing 33 cents establishing a $3.57 futures floor.
   Soybeans 
   May 2017 soybean futures closed at $10.06 down 31 cents since last Friday. For the week, May 2017 soybean futures traded between $10.03 and $10.48. Average soybean basis weakened or remained unchanged at Memphis, Northwest Barge Points, Lower-middle, and Upper-middle Tennessee and strengthened at Northwest Tennessee. Basis ranged from 39 under to even the May futures contract at elevators and barge points. Average basis at the end of the week was 15 under the May futures contract. Net sales reported by exporters were within expectations with net sales of 17.8 million bushels for the 2016/17 marketing year and 1.1 million bushels for the 2017/18 marketing year. Exports for the same period were down from last week at 36.1 million bushels. Soybean export sales and commitments were 95 percent of the USDA estimated total annual exports for the 2016/17 marketing year (September 1 to August 31), compared to a 5-year average of 91 percent. May soybean-to-corn futures price ratio was 2.76 at the end of the week. May/Jul and May/Nov future spreads were 10 cents and -7 cents, respectively. July 2017 soybean futures closed at $10.16 down 30 cents since last Friday.
   In Tennessee, October / November 2017 soybean cash contracts average $10.01 with a range of $9.65 to $10.24. November/December 2017 soybean-to-corn price ratio was 2.59 at the end of the week. November 2017 soybean futures closed at $9.99 down 23 cents since last Friday. Downside price protection could be achieved by purchasing a $10.00 November 2017 Put Option which would cost 63 cents and set a $9.37 futures floor.
   Cotton 
   May 2017 cotton futures closed at 77.29 down 0.7 cents since last Friday. For the week, May 2017 cotton futures traded between 77.1 and 78.15 cents. Delta upland cotton spot price quotes for March 9 were 75.32 cents/lb (41-4-34) and 76.57 cents/lb (31-3-35). Adjusted world price (AWP) increased 1.75 cents to 68.34 cents per pound. Net sales reported by exporters were down from last week with net sales of 248,900 bales for the 2016/17 marketing year and 215,500 bales for the 2017/18 marketing year. Exports for the same period were up from last week at 529,000 bales. Upland cotton export sales were 96 percent of the USDA estimated total annual exports for the 2016/17 marketing year (August 1 to July 31), compared to a 5-year average of 89 percent. July 2017 cotton futures closed at 78.37 down 0.46 cents since last Friday. May/Jul and May/Dec cotton futures spreads were 1.08 cents and -2.0 cents, respectively.
   December 2017 cotton futures closed at 75.29 up 0.35 cents since last Friday. Downside price protection could be obtained by purchasing a 76 cent December 2017 Put Option costing 4.69 cents establishing a 71.31 cent futures floor.
   Wheat
   May 2017 wheat futures closed at $4.40 down 13 cents since last Friday. May 2017 wheat futures traded between $4.39 and $4.62 this week. May wheat-to-corn price ratio was 1.21.Wheat net sales reported by exporters were within expectations with net sales of 14.4 million bushels for the 2016/17 marketing year and 1.5 million bushels for the 2017/18 marketing year. Exports for the week were down from last week at 16.6 million bushels. Wheat export sales were 91 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 93 percent. In Memphis, old crop cash wheat ranged from $4.50 to $4.64. May/Jul and May/Sep future spreads were 16 cents and 31 cents, respectively.
   In Tennessee, June/July 2017 cash wheat ranged from $4.39 to $4.98. July 2017 wheat futures closed at $4.56 down 12 cents since last Friday. Downside price protection could be obtained by purchasing a $4.60 July 2017 Put Option costing 27 cents establishing a $4.33 futures floor. July 2017 wheat-to-corn price ratio was 1.23.  September 2017 wheat futures closed at $4.71 down 11 cents since last Friday. ∆
   DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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