Slight Price Rise For Corn, Wheat Expected

DR. AARON SMITH

KNOXVILLE, TENN.
   This week corn and wheat futures provided a glimmer of hope that prices could start to rally. A major move remains unlikely due to large domestic and global supplies but a move above the current trading ranges would be welcomed by producers looking to sell the remainder of their 2017 production.
   Since November 10, 2017, corn harvest futures have traded between $3.79 ¼ and $3.91, a narrow trading range of 11 ¾ cents. Over the same time period, harvest soybean futures have traded between $9.67 ½ and $10.24, a trading range of 56 ½ cents. Greater volatility in soybean prices relative to corn exists due to more uncertainty in the market.
   Soybean prices over the past three months have been influenced primarily by two interrelated factors South American crop progress and U.S. export sales pace. In general, crop conditions in Brazil have been reported as mostly favorable while crop conditions in Argentina are less favorable. Both are important competitors for Chinese and other foreign soybean import markets.
   U.S. soybean export sales commitments to-date for the 2017/18 marketing year are down 13 percent compared to last year (USDA projects a 1 percent increase year-over-year). Closing the export sales gap (and the potential corresponding buildup in domestic ending stocks) is essential for prices to be maintained or improved.
   Nearby cotton futures have leveled off the past two weeks after an impressive three month price appreciation that saw the March contract move from 66.77 cents to a high of 84.65 cents (a 17.88 cent increase!). The question now is where will prices go from here? Will the market move sideways and establish a new trading range or have the past two weeks merely been a pause with another leg up yet to come. Currently, there is evidence to support an additional increase in nearby futures prices (on-call sales, export sales commitments, and shortage of high quality cotton).
   2018 cotton harvest futures will likely proceed more cautiously than old crop futures. December 2018 cotton futures have appreciated over 8 cents since October 20 (67.76 cents to a high of 76.24 cents).
   Corn
   Across Tennessee, average corn basis (cash price-nearby futures price) weakened at Northwest Barge Points and Northwest Tennessee and was unchanged at Memphis, Upper-middle, and Lower-middle Tennessee. Overall, basis for the week ranged from 17 under to 20 over the March futures contract with an average of 6 over at the end of the week. March 2018 corn futures closed at $3.56, up 4 cents since last Friday. For the week, March 2018 corn futures traded between $3.49 and $3.58. Corn net sales reported by exporters from January 12-18 were above expectations with net sales of 56.9 million bushels for the 2017/18 marketing year and 3.4 million bushels for the 2018/19 marketing year. Exports for the same time period were down from last week at 23.6 million bushels. Corn export sales and commitments were 62 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 64 percent. Ethanol production for the week ending January 19 was 1.062 million barrels per day, up 1,000 from the previous week. Ethanol stocks were 23.8 million barrels, up 1,057,000 barrels. Mar/May and Mar/Dec future spreads were 9 and 33 cents, respectively.
   May 2018 corn futures closed at $3.65, up 5 cents since last Friday. In Tennessee, September 2018 corn cash forward contracts averaged $3.63 with a range of $3.51 to $3.90. December 2018 corn futures closed at $3.89, up 4 cents since last Friday. Downside price protection could be obtained by purchasing a $3.90 December 2018 Put Option costing 24 cents establishing a $3.66 futures floor.
   Soybeans
   Average soybean basis strengthened at Lower-middle Tennessee and weakened at Memphis, Northwest Barge Points, Upper-middle, and Northwest Tennessee. Basis ranged from 33 under to 16 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. March 2018 soybean futures closed at $9.85, up 8 cents since last Friday. For the week, March 2018 soybean futures traded between $9.79 and $10.02. Net sales reported by exporters were within expectations with net sales of 22.6 million bushels for the 2017/18 marketing year and 10.6 million bushels for the 2018/19 marketing year. Exports for the same period were up from last week at 45.7 million bushels. Soybean export sales and commitments were 74 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 88 percent. March soybean-to-corn price ratio was 2.77 at the end of the week.
   Mar/May and Mar/Nov future spreads were 12 and 17 cents, respectively. May 2018 soybean futures closed at $9.97, up 9 cents since last Friday. In Tennessee, Oct/Nov 2018 soybean cash contracts average $9.78 with a range of $9.61 to $10.04. November 2018 soybean futures closed at $10.02, up 6 cents since last Friday. Downside price protection could be achieved by purchasing a $10.20 November 2018 Put Option which would cost 64 cents and set a $9.56 futures floor. November/December 2018 soybean-to-corn price ratio was 2.58 at the end of the week.
   Cotton
   Delta upland cotton spot price quotes for January 25 were 80.88 cents/lb (41-4-34) and 82.63 cents/lb (31-3-35). Adjusted world price (AWP) increased 0.85 cents to 75.3 cents per pound. March 2018 cotton futures closed at 80.48 cents, down 2.94 cents since last Friday. For the week, March 2018 cotton futures traded between 80.32 and 83.95 cents. Net sales reported by exporters were down from last week with net sales of 67,700 bales for the 2017/18 marketing year and 107,800 bales for the 2018/19 marketing year. Exports for the same period were down from last week at 232,500 bales. Upland cotton export sales were 83 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 75 percent. Mar/May and Mar/Dec cotton futures spreads were 0.74 cents and -4.97 cents, respectively.
   May 2018 cotton futures closed at 81.22, down 2.57 cents since last Friday. December 2018 cotton futures closed at 75.51, down 0.26 cents since last Friday. Downside price protection could be obtained by purchasing a 76 cent December 2018 Put Option costing 4.71 cents establishing a 71.29 cent futures floor.
   Wheat
   In Memphis, old crop cash wheat ranged from $3.96 to $4.40. March 2018 wheat futures closed at $4.41, up 19 cents since last Friday. March 2018 wheat futures traded between $4.19 and $4.42 this week. March wheat-to-corn price ratio was 1.24. Wheat net sales reported by exporters were above expectations with net sales of 15.7 million bushels for the 2017/18 marketing year and 5.3 million bushels for the 2018/19 marketing year. Exports for the week were down from last week at 13.8 million bushels. Wheat export sales were 76 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 83 percent. Mar/May and Mar/Jul future spreads were 12 cents and 25 cents, respectively.
  May 2018 wheat futures closed at $4.53, up 18 cents since last Friday. In Tennessee, June/July 2018 cash forward contracts ranged from $4.28 to $4.84 for the week. July 2018 wheat futures closed at $4.66, up 18 cents since last Friday. Downside price protection could be obtained by purchasing a $4.70 July 2018 Put Option costing 26 cents establishing a $4.44 futures floor. ∆
   DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
MidAmerica Farm Publications, Inc
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