AgWatch


Domestic Corn Will Drive Prices Next Few Months

DR. AARON SMITH

KNOXVILLE, TENN.
   Domestic corn production/yield will drive prices for the next couple of months. Currently, the USDA projects U.S. corn production at 14.153 billion bushels, down 995 million bushels from last year. Harvested acres are projected at 83.5 million acres, down 3.2 million acres compared to last year and yield is projected at 169.5 bu/acre, down 5.1 bu/acre compared to last year. At this time of year, acreage estimates are generally agreed upon, however, national and state average yields are often hotly debated.
   Corn use for the upcoming marketing year (September 1, 2017 to August 1, 2018) is estimated at 14.3 billion bushels and ending stocks at 2.273 billion bushels. This provides an estimated U.S. stocks-to-use ratio of 15.9 percent (2.273 million bushels / 14.3 million bushels). Us-ing a simple linear trend line, a 15.9 percent stocks-to-use ratio translates into a national marketing year average price of about $3.68/bu. A 1 percent decrease (increase) in the U.S. stocks-to-use ratio would translate into about a 29 cent per bushel increase (decrease) in the national marketing year average price.
   For example, a 167.5 bu/acre national average yield (down 2 bu/acre from the current estimate) would potentially (assuming demand remained unchanged) reduce stocks by 167 million bushels (83.5 million acres x 2 bu/acre). This would result in a stocks-to-use ratio of 14.7 percent (2.106 million bushels / 14.3 million bushels) and translate into a national marketing year average price of about $4.03/bu.
   This simple example uses the current USDA acreage estimate which may be revised. Additionally, corn demand is held constant at 14.3 billion bushels, which would need to be modified for higher anticipated prices (simple economics tells us that as prices increase de-mand decreases). However, this example does highlight the importance of average national yield to marketing year and farm level price.
Corn 
   September 2017 corn futures closed at $3.38 down 14 cents since last Friday. For the week, September 2017 corn futures traded be-tween $3.38 and $3.51. Across Tennessee, average basis (cash price-nearby futures price) strengthened or remained unchanged at Upper-middle, Northwest, and Lower-Middle Tennessee and weakened at Memphis and Northwest Barge Points. Overall, basis for the week ranged from 20 under to 15 over the September futures contract with an average of 4 under the September futures contract at the end of the week. Corn net sales reported by exporters from August 11-17 were within expectations with net sales of 4.0 million bushels for the 2016/17 marketing year and 16.7 million bushels for the 2017/18 marketing year. Exports for the same time period were up from last week at 28.5 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 105 percent. Ethanol production for the week ending August 18 was 1.052 million barrels per day down 7,000 from the previous week. Ethanol stocks were 21.509 million barrels, down 319,000 barrels. Sep/Dec and Sep/Mar future spreads were 15 and 28 cents, respectively.
   Nationally, the Crop Progress report estimated corn dough or beyond at 76 percent compared to 61 percent last week, 83 percent last year, and a 5-year average of 77 percent; corn dented at 29 percent compared to 16 percent last week, 37 percent last year, and a 5-year average of 35 percent; and corn condition at 62 percent good-to-excellent and 12 percent poor-to-very poor. In Tennessee, the Crop Progress report estimated corn condition at 86 percent good-to-excellent and 2 percent poor-to-very poor; corn dough or beyond at 96 percent compared to 90 percent last week, 97 percent last year, and a 5-year average of 96 percent; corn dented at 72 percent compared to 52 percent last week, 79 percent last year, and a 5-year average of 73 percent; and corn mature at 20 percent compared to 14 percent last year and a 5-year average of 17 percent. In Tennessee, September 2017 cash forward contracts averaged $3.37 with a range of $3.27 to $3.59. December 2017 corn futures closed at $3.53 down 12 cents since last Friday. Downside price protection could be obtained by purchasing a $3.60 December 2017 Put Option costing 16 cents establishing a $3.44 futures floor. March 2018 corn futures closed at $3.66 down 11 cents since last Friday.
   Soybeans
   September 2017 soybean futures closed at $9.39 up 2 cents since last Friday. For the week, September 2017 soybean futures traded between $9.27 and $9.43. Average soybean basis strengthened at North West Barge Points, Lower-middle, Upper-middle, and Northwest Tennessee and weakened at Memphis. Basis ranged from 37 under to 27 over the September futures contract at elevators and barge points. Average basis at the end of the week was 2 under the September futures contract. Net sales reported by exporters were above expectations with net sales of 14.7 million bushels for the 2016/17 marketing year and 73.8 million bushels for the 2017/18 marketing year. Exports for the same period were down from last week at 25.8 million bushels. Soybean export sales and commitments were 104 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 2.78 at the end of the week. Sep/Nov and Sep/Jan future spreads were 5 cents and 14 cents, respectively.
   Nationally, the Crop Progress report estimated soybeans blooming at 97 percent compared to 94 percent last week, 98 percent last year, and a 5-year average of 97 percent; soybeans setting pods at 87 percent compared to 79 percent last week, 88 percent last year, and a 5-year average of 85 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 80 percent good-to-excellent and 5 percent poor-to-very poor; soybeans blooming at 94 percent compared to 92 percent last week, 97 percent last year, and a 5-year average of 93 percent; and soybeans setting pods at 84 percent compared to 79 percent last week, 86 percent last year, and a 5-year average of 79 percent. In Tennessee, October/November 2017 soybean cash contracts average $9.32 with a range of $8.96 to $9.61. November/December 2017 soy-bean-to-corn price ratio was 2.67 at the end of the week. November 2017 soybean futures closed at $9.44 up 7 cents since last Friday. Downside price protection could be achieved by purchasing a $9.50 November 2017 Put Option which would cost 26 cents and set a $9.24 futures floor. January 2018 soybean futures closed at $9.53 up 8 cents since last Friday.
   Cotton
   Delta upland cotton spot price quotes for August 24 were 69.42 cents/lb (41-4-34) and 70.67 cents/lb (31-3-35). Adjusted world price (AWP) decreased 0.05 cents to 59.65 cents per pound. Net sales reported by exporters were up from last week with net sales 277,600 bales for the 2017/18 marketing year and 51,900 for the 2018/19 marketing year. Exports for the same period were up from last week at 221,800 bales. Upland cotton export sales were 51 percent of the USDA estimated total annual exports for the 2017/18 marketing year (August 1 to July 31), compared to a 5-year average of 35 percent. October 2017 cotton futures closed at 68.61 up 0.82 cents since last Friday. Oct/Dec and Dec/Mar cotton futures spreads were -0.46 cents and -0.22 cents, respectively.
   Nationally, the Crop Progress report estimated cotton setting bolls at 88 percent compared to 80 percent last week, 91 percent last year, and a 5-year average 88 percent; cotton bolls opening at 12 percent compared to 10 percent last week, 15 percent last year, and a 5-year average of 14 percent; and cotton condition at 63 percent good-to-excellent and 11 percent poor-to-very poor. In Tennessee, cotton condition was estimated at 94 percent good-to-excellent and 2 percent poor-to-very poor; cotton setting bolls at 97 percent compared to 91 percent last week, 96 percent last year, and a 5-year average of 90 percent; and cotton bolls opening at 7 percent compared to 4 percent last week, 8 percent last year, and a 5-year average of 8 percent. December 2017 cotton futures closed at 68.15 cents up 0.87 cents since last Friday. For the week, December 2017 cotton futures traded between 67.17 and 70 cents. Downside price protection could be obtained by purchasing a 69 cent December 2017 Put Option costing 3.07 cents establishing a 65.93 cent futures floor. March 2018 cotton futures closed at 67.93 up 0.87 cents since last Friday.
   Wheat
   In Tennessee this week, cash wheat ranged from $3.62 to $4.16. Wheat net sales reported by exporters were within expectations with net sales of 14.2 million bushels for the 2017/18 marketing year. Exports for the week were down from last week at 18.3 million bushels. Wheat export sales were 44 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 46 percent. Sep/Dec and Sep/Jul future spreads were 26 cents and 76 cents, respectively.
   September 2017 wheat futures closed at $4.09 down 7 cents since last Friday. September 2017 wheat futures traded between $4.00 and $4.18 this week. September wheat-to-corn price ratio was 1.21. Nationally, the Crop Progress report estimated spring wheat harvested at 58 percent compared to 40 percent last week, 63 percent last year, and a 5-year average of 51 percent; and spring wheat condition at 34 percent good-to-excellent and 42 percent poor-to-very poor. December 2017 wheat futures closed at $4.35 down 7 cents from last Friday. In Memphis, July 2018 cash forward contracts ranged from $4.86 to $4.93 for the week. July 2018 wheat futures closed at $4.85 down 8 cents since last Friday. Downside price protection could be obtained by purchasing a $4.90 July 2018 Put Option costing 35 cents establishing a $4.55 futures floor. ∆
   DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee

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