High U.S. Corn Supplies, Glut Of Grains, Affect Market

DR. AARON SMITH

KNOXVILLE, TENN.
   A New Year brings new opportunities for marketing, however it is also a good time to examine where the markets are relative to past years. The new crop December corn contract closed 2017 at $3.84/bu, virtually the same as the 2016 ($3.80/bu) and 2015 ($3.83/bu) December contracts at the same time the past two years. Corn markets continue to suffer from large domestic supplies and a glut of grains on the world market.
   The new crop November soybean contract closed 2017 at $9.75 ¾ per bushel, down from one year ago ($9.89 ¼), but up from two years ago ($8.82 ¾). In 2017, soybean prices were influenced by strong global demand and increased US and South American supplies. In 2018, price direction will be largely dictated by South American crop progress and US export sales (which will be a function of South American production and currency exchange rates between the USD, Brazilian Real, Argentinian Peso, and the Chinese Yuan).
   The new crop December cotton contract closed 2017 at 74.51 cents/lb. This continues the upward trend of the past two years as the new crop contract closed at 69.54 and 64.72 cents, respectively. Cotton prices have increased substantially this past year in spite of a USDA estimated increase in US ending stocks of 3.05 million bales (2.75 to 5.8 million bales). Increasing global cotton demand and uncertainty of Indian and Australian production provide support for increased prices. However, for the current rally to be maintained it is likely that US carryover will need to be reduced substantially. As such, export sales (and shipment) pace will be monitored closely in early 2018.
July wheat futures closed 2017 at $4.53 ¼, higher than the previous year ($4.34 ¼). However, this was after four years of declining futures prices.    Wheat prices are indicative of the large global supplies and record Russian production in 2017. Further complicating wheat fundamentals is flat demand (when adjusting for population growth).
   Corn
   Across Tennessee, average corn basis (cash price-nearby futures price) strengthened at Memphis, Northwest Barge Points, Lower-middle, Upper-middle, and Northwest Tennessee. Overall, basis for the week ranged from 15 under to 22 over the March futures contract with an average of 7 over at the end of the week. In Tennessee, February 2018 corn cash forward contracts averaged $3.62 with a range of $3.50 to $3.87. March 2018 corn futures closed at $3.51 down 1 cent since Dec. 22. For the week, March 2018 corn futures traded between $3.50 and $3.54. Corn net sales reported by exporters from December 22-28 were below expectations with net sales of 4.0 million bushels for the 2017/18 marketing year. Exports for the same time period were down from last week at 25.9 million bushels. Corn export sales and commitments were 55 percent of the USDA estimated total annual exports for the 2017/18 marketing year (September 1 to August 31) compared to a 5-year average of 58 percent. Ethanol production for the week ending December 29 was 1.032 million barrels per day down 58,000 from the previous week. Ethanol stocks were 22.619 million barrels, up 588,000 barrels. Mar/May and Mar/Dec future spreads were 8 and 33 cents, respectively.
   May 2018 corn futures closed at $3.59 down 1 cent since Dec 22. December 2018 corn futures closed at $3.84 unchanged since Dec 22. Downside price protection could be obtained by purchasing a $3.90 December 2018 Put Option costing 27 cents establishing a $3.63 futures floor.
   Soybeans
   Average soybean basis strengthened at Memphis, Northwest Barge Points, Lower-middle, Upper-middle, and Northwest Tennessee. Basis ranged from 40 under to 13 over the March futures contract at elevators and barge points. Average basis at the end of the week was 8 under the March futures contract. In Tennessee, February 2018 soybean cash contracts average $9.60 with a range of $9.44 to $9.84. March 2018 soybean futures closed at $9.70 up 10 cents since Dec. 22. For the week, March 2018 soybean futures traded between $9.58 and $9.77. Net sales reported by exporters were below expectations with net sales of 20.3 million bushels for the 2017/18 marketing year and 0.2 million bushels for the 2018/19 marketing year. Exports for the same period were down from last week at 42.2 million bushels. Soybean export sales and commitments were 68 percent of the USDA estimated total annual exports for the 2017/18 marketing year (September 1 to August 31), compared to a 5-year average of 83 percent. March soybean-to-corn price ratio was 2.76 at the end of the week.
   Mar/May and Mar/Nov future spreads were 11 and 15 cents, respectively. May 2018 soybean futures closed at $9.81 up 10 cents since Dec 22. November 2018 soybean futures closed at $9.85 up 12 cents since Dec 22. Downside price protection could be achieved by purchasing a $10.00 November 2018 Put Option which would cost 64 cents and set a $9.36 futures floor. November/December 2018 soybean-to-corn price ratio was 2.57 at the end of the week.
   Cotton
   Delta upland cotton spot price quotes for January 4 were 78.50 cents/lb (41-4-34) and 80.25 cents/lb (31-3-35). Adjusted world price (AWP) increased 2.86 cents to 70.86 cents per pound. March 2018 cotton futures closed at 78.01 cents up 0.14 cents since Dec. 22. For the week, March 2018 cotton futures traded between 77.3 and 80.05 cents. Net sales reported by exporters were up from last week with net sales of 193,900 bales for the 2017/18 marketing year and 93,200 bales for the 2018/19 marketing year. Exports for the same period were down from last week at 208,500 bales. Upland cotton export sales were 78 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 67 percent. Mar/May and Mar/Dec cotton futures spreads were 0.24 cents and -3.65 cents, respectively.
   May 2018 cotton futures closed at 78.25 up 1.72 cents since Dec. 22. December 2018 cotton futures closed at 74.36 up 0.36 cents since last Friday. Downside price protection could be obtained by purchasing a 75 cent December 2018 Put Option costing 4.75 cents establishing a 70.25 cent futures floor.
   Wheat
   In Memphis, old crop cash wheat ranged from $4.08 to $4.39. March 2018 wheat futures closed at $4.30 up 6 cents since Dec 22. March 2018 wheat futures traded between $4.27 and $4.37 this week. March wheat-to-corn price ratio was 1.23. Wheat net sales reported by exporters were below expectations with net sales of 4.8 million bushels for the 2017/18 marketing year. Exports for the week were down from last week at 8.4 million bushels. Wheat export sales were 74 percent of the USDA estimated total annual ex-ports for the 2017/18 marketing year (June 1 to May 31), compared to a 5-year average of 79 percent. Mar/May and Mar/Jul future spreads were 12 cents and 25 cents, respectively.
May 2018 wheat futures closed at $4.42 up 5 cents since Dec. 22. In Tennessee, June/July 2018 cash forward contracts ranged from $4.39 to $4.85 for the week. July 2018 wheat futures closed at $4.55 up 5 cents since Dec 22. Downside price protection could be obtained by purchasing a $4.60 July 2018 Put Option costing 28 cents establishing a $4.32 futures floor. ∆
   DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee

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