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USDA's August Report Shows Bearish Market Reaction
DR. AARON SMITH
KNOXVILLE, TENN.
The big news this week was the release of the USDA’s August WASDE report. Full details of the report for corn, soybeans, cotton, and wheat can be found online at: https://ag.tennessee.edu/arec/Pages/MonthlyCropComments.aspx.
Overall the report had a bearish market reaction for all four commodities with 2017/18 contracts down across the board: corn futures were down 12-15 cents; soybeans down 24-33 cents; wheat down 15-19 cents; and cotton down 2.24-3 cents. The primary driver was higher domestic yields than anticipated. National yields (the first for this crop year estimated by survey data) were: 169.5 bu/acre for corn; 49.4 bu/acre for soybeans; 45.6 bu/acre for wheat; and 892 lbs/acre for cotton.
For corn, the National average yield was 2-4 bu/acre higher than many were projecting. Corn yields in Tennessee were projected at 166 bu/acre up 15 bu/acre from 2016. Domestic and foreign ending stocks for the 2017/18 marketing year were projected down 52 million bushels and up 55 million bushels, respectively, from the previous estimates. US stocks-to-use ratio is now projected at 15.9 percent.
For soybeans, a great deal of yield uncertainty remains as August and September weather will be crucial in determining the National average soybean yield. In Tennessee, soybean yields were projected at 45 bu/acre the same as last year. Compared to July’s report, domestic and foreign 2017/18 marketing year ending stocks were increased 15 and 141 million bushels, respectively.
For cotton, National average yield was projected to tie the all-time high of 892 lbs/acre from 2012. Tennessee cotton yield was projected at 1,036 lbs/acre, down 68 lbs/acre from last year. The US crop is now projected to be over 20.5 million bales for the 2017 crop year.
For wheat, National average yield was reduced 0.6 bu/acre to 45.6 bu/acre. The bigger surprise with the growth in global wheat stocks projected at an all-time high of over 9.7 billion bushels (933 million domestic and 8.793 billion foreign).
Corn
September 2017 corn futures closed at $3.60 down 6 cents since last Friday. For the week, September 2017 corn futures traded between $3.56 and $3.75. Across Tennessee, average basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis, Northwest Barge Points, and Upper-Middle Tennessee and weakened at Northwest and Lower-middle Tennessee. Overall, basis for the week ranged from 26 under to 15 over the September futures contract with an average of 8 under the September futures contract at the end of the week. Corn net sales reported by exporters from July 28-August 3 were above expectations with net sales of 2 million bushels for the 2016/17 marketing year and 24.7 million bushels for the 2017/18 marketing year. Exports for the same time period were down from last week at 38.3 million bushels. Corn export sales and commitments were 100 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 104 percent. Ethanol production for the week ending August 4 was 1.012 million barrels per day up 10,000 from last week. Ethanol stocks were 21.347 million barrels, up 495,000 barrels. Sep/Dec and Sep/Mar future spreads were 14 and 26 cents, respectively.
Nationally, the Crop Progress report estimated corn silking at 93 percent compared to 85 percent last week, 96 percent last year, and a 5-year average of 94 percent; corn dough or beyond at 42 percent compared to 23 percent last week, 50 percent last year, and a 5-year average of 44 percent; corn dented at 7 percent compared to 8 percent last year and a 5-year average of 11 percent; and corn condition at 60 percent good-to-excellent and 13 percent poor-to-very poor. In Tennessee, the Crop Progress report estimated corn condition at 83 percent good-to-excellent 5 percent poor-to-very poor; corn silking at 99 percent compared to 98 percent last week, 98 percent last year, and a 5-year average of 98 percent; corn dough or beyond at 83 percent compared to 68 percent last week, 87 percent last year, and a 5-year average of 83 percent; and corn dented at 18 percent compared to 48 percent last year and a 5-year average of 38 percent. In Tennessee, September 2017 cash forward contracts averaged $3.56 with a range of $3.38 to $3.82. December 2017 corn futures closed at $3.74 down 7 cents since last Friday. Downside price protection could be obtained by purchasing a $3.80 December 2017 Put Option costing 18 cents establishing a $3.62 futures floor. March 2018 corn futures closed at $3.86 down 6 cents since last Friday.
Soybeans
September 2017 soybean futures closed at $9.38 down 14 cents since last Friday. For the week, September 2017 soybean futures traded between $9.30 and $9.81. Average soybean basis strengthened at Memphis, North West Barge Points, Upper-middle, and Northwest Tennessee and weakened at Lower-middle Tennessee. Basis ranged from 47 under to 23 over the September futures contract at elevators and barge points. Average basis at the end of the week was 1 under the September futures contract. Net sales reported by exporters were above expectations with net sales of 1.7 million bushels for the 2016/17 marketing year and 23.5 million bushels for the 2017/18 marketing year. Exports for the same period were down from last week at 22.5 million bushels. Soybean export sales and commitments were 106 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 103 percent. September soybean-to-corn futures price ratio was 2.65 at the end of the week. Sep/Nov and Sep/Jan future spreads were 7 cents and 15 cents, respectively.
Nationally, the Crop Progress report estimated soybeans blooming at 90 percent compared to 82 percent last week, 90 percent last year, and a 5-year average of 88 percent; soybeans setting pods at 65 percent compared to 48 percent last week, 67 percent last year, and a 5-year average of 62 percent; and soybean condition at 60 percent good-to-excellent and 12 percent poor-to-very poor. In Tennessee, the Crop Progress report estimated soybean condition at 75 percent good-to-excellent and 9 percent poor-to-very poor; soybeans blooming at 89 percent compared to 85 percent last week, 88 percent last year, and a 5-year average of 79 percent; and soybeans setting pods at 70 percent compared to 52 percent last week, 66 percent last year, and a 5-year average of 57 percent. In Tennessee, October/November 2017 soybean cash contracts average $9.51 with a range of $9.00 to $9.87. November/December 2017 soybean-to-corn price ratio was 2.53 at the end of the week. November 2017 soybean futures closed at $9.45 down 11 cents since last Friday. Downside price protection could be achieved by purchasing a $9.50 November 2017 Put Option which would cost 29 cents and set a $9.21 futures floor. January 2018 soybean futures closed at $9.53 down 12 cents since last Friday.
Cotton
Delta upland cotton spot price quotes for August 10 were 67.76 cents/lb (41-4-34) and 69.01 cents/lb (31-3-35). Adjusted world price (AWP) decreased 0.95 cents to 62.46 cents per pound. Net sales reported by exporters were up from last week with net sales 75,800 bales for the 2017/18 marketing year. Exports for the same period were down from last week at 216,200 bales. 745,300 bales in net sales were carried over from the 2016/17 marketing year which ended July 31. Net export sales for the 2016/17 marketing year were reported at 13.82 million bales of upland cotton up 64 percent from the previous marketing year. Upland cotton export sales were 12 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 14 percent. October 2017 cotton futures closed at 69.24 down 1.75 cents since last Friday. Oct/Dec and Dec/Mar cotton futures spreads were -0.99 cents and -0.20 cents, respectively.
Nationally, the Crop Progress report estimated cotton squaring at 93 percent compared to 87 percent last week, 95 percent last year, and a 5-year average of 96 percent; cotton setting bolls at 58 percent compared to 46 percent last week, 68 percent last year, and a 5-year average 68 percent; cotton bolls opening at 8 percent compared to 9 percent last year and a 5-year average of 7 percent; and cotton condition at 57 percent good-to-excellent and 14 percent poor-to-very poor. In Tennessee, cotton condition was estimated at 81 percent good-to-excellent and 9 percent poor-to-very poor; cotton squaring at 98 percent compared to 97 percent last week, 97 percent last year, and a 5-year average of 95 percent; cotton setting bolls at 88 percent compared to 64 percent last week, 78 percent last year, and a 5-year average of 71 percent; and cotton bolls opening at 0 percent compared to 1 percent last year and a 5-year average of 0 percent. December 2017 cotton futures closed at 68.25 cents down 2.37 cents since last Friday. For the week, December 2017 cotton futures traded between 67.75 and 71.2 cents. Downside price protection could be obtained by purchasing a 69 cent December 2017 Put Option costing 2.59 cents establishing a 66.41 cent futures floor. March 2018 cotton futures closed at 68.05 down 2 cents since last Friday.
Wheat
In Tennessee, cash wheat ranged from $4.00 to $4.73. Wheat net sales reported by exporters were above expectations with net sales of 17.1 million bushels for the 2017/18 marketing year. Exports for the week were down from last week at 20.9 million bushels. Wheat export sales were 40 percent of the USDA estimated total annual exports for the 2017/18 marketing year (June 1 to May 31), compared to a 5-year average of 42 percent. Sep/Dec and Sep/Jul future spreads were 28 cents and 74 cents, respectively.
September 2017 wheat futures closed at $4.39 down 15 cents since last Friday. September 2017 wheat futures traded between $4.34 and $4.68 this week. September wheat-to-corn price ratio was 1.22. Nationally, the Crop Progress report estimated winter wheat harvested at 94 percent compared to 88 percent last week, 93 percent last year, and a 5-year average of 92 percent; spring wheat harvested at 24 percent compared to 9 percent last week, 27 percent last year, and a 5-year average of 21 percent; and spring wheat condition at 32 percent good-to-excellent and 43 percent poor-to-very poor. December 2017 wheat futures closed at $4.67 down 15 cents from last Friday. In Memphis, July 2018 cash forward contracts ranged from $5.14 to $5.33 for the week. July 2018 wheat futures closed at $5.13 down 13 cents since last Friday. Downside price protection could be obtained by purchasing a $5.20 July 2018 Put Option costing 40 cents establishing a $4.80 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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