Corn And Soybean Yield Expectations Are Very Good

DR. AARON SMITH

KNOXVILLE, TENN.
   In July, commodity markets were driven by weather and trade disputes. For most of the major corn and soybean producing regions in the United States, growing conditions have been very good, as a result many are expecting yields to be above trend line (early national average yield projections are 171-179 bu/acre for corn and 48-53 bu/acre for soybeans). Cotton production has suffered in parts of Texas and the Southwest, however the Mid-South and Southeast cotton crop looks very good. July 6th marked the day that China officially put retaliatory tariffs on several U.S. agricultural goods, including cotton, corn, soybeans, and wheat. The futures market had the tariffs priced into the market as the trade dispute had been building since early January and intensified at the end of May.
   December corn opened July at $3.72 ½ and closed at $3.86 ½, up 14 cents – trading range for the month was $3.50 ¼ to $3.88 ½. Global supply and demand fundamentals would project higher prices for corn in the near future, however markets seem to be waiting for a potential resolution to trade disputes and verification of domestic yields.
   November soybeans opened July at $8.81 ½ and closed at $9.19, up 37 ½ cents – trading range for the month was $8.26 ¼ to $9.22 ¼. Trade is dominating soybean markets. This week soybean futures were up 28 cents on Tuesday when President Trump indicated “increased” purchases of soybeans by the E.U. were forthcoming. Later in the week E.U. officials provided clarification that market forces (lower prices in the U.S. compared to Brazil as a result of Chinese demand for Brazilian soybeans) would dictate European countries buying decisions. As a result markets walked back most of the 28 cent increase.
   December cotton opened July at 84.44 and closed at 89.59, up 5.15 cents – trading range for the month was 81.75 to 89.98. Chinese tariffs have not had as large of an effect on cotton prices as soybeans. This may seem peculiar given the U.S. exports about 87 percent of all cotton production, however, tariffs have been largely avoided due to changes in marketing dynamics that have occurred over the past couple of years. For example, U.S. cotton can be exported to Vietnam, made into yarn, and then the yarn exported into China, without the 25 percent tariff.
   September wheat opened July at $5.01 ¼ and closed at $5.45 ½, up 44 ¼ cents – trading range for the month was $4.71 ¼ to $5.65. Cash wheat prices in west Tennessee are over $6 bu in some locations. Strong consideration should be given to additional old crop sales while prices are above $6 for two reasons: 1) $6 is a recent high in the market; and 2) with a very promising corn and soybean crop coming to market shortly storage space will be required.
   Corn
   Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Northwest and Upper-middle Tennessee and weakened at Memphis, Northwest Barge Points, and Lower-middle Tennessee. Overall, basis for the week ranged from 16 under to 30 over the September futures contract with an average of 2 under at the end of the week. September 2018 corn futures closed at $3.69, up 7 cents since last Friday. For the week, September 2018 corn futures traded between $3.63 and $3.74. Corn net sales reported by exporters from July 20-26 were within expectations with net sales of 11.5 million bushels for the 2017/18 marketing year and 38.8 million bushels for the 2018/19 marketing year. Exports for the same time period were up 27 percent compared to last week at 64.0 million bushels. Corn export sales and commitments were 97 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 103 percent. Ethanol production for the week ending July 27 was 1.064 million barrels per day, down 10,000 from the previous week. Ethanol stocks were 21.967 million barrels, up 314,000 barrels. Sep/Dec and Sep/Mar future spreads were 15 and 26 cents, respectively.
   The Crop Progress report estimated corn condition at 72 percent good-to-excellent and 9 percent poor-to-very poor; corn silking at 91 percent compared to 81 percent last week, 82 percent last year, and a 5-year average of 82 percent; and corn doughing at 38 percent compared to 18 percent last week, 21 percent last year, and a 5-year average of 20 percent. In Tennessee, corn condition was estimated at 74 percent good-to-excellent and 8 percent poor-to-very poor; corn silking at 96 percent compared 95 percent last week, 98 percent last year, and a 5-year average of 96 percent; and corn doughing at 78 percent compared to 64 percent last week, 66 percent last year, and a 5-year average of 63 percent. In Tennessee, September 2018 corn cash forward contracts averaged $3.62 with a range of $3.45 to $3.92.     December 2018 corn futures closed at $3.84, up 8 cents since last Friday. Downside price protection could be obtained by purchasing a $3.90 December 2018 Put Option costing 21 cents establishing a $3.69 futures floor. March 2019 corn futures closed at $3.95, up 9 cents since last Friday.
   Soybeans
   Average soybean basis strengthened or remained unchanged at Lower-middle and Upper-middle Tennessee and weakened at Memphis, Northwest Barge Points, and Northwest Tennessee. Basis ranged from 46 under to 10 over the September futures contract at elevators and barge points. Average basis at the end of the week was 20 under the September futures contract. September 2018 soybean futures closed at $8.91, up 16 cents since last Friday. For the week, September 2018 soybean futures traded between $8.73 and $9.12. Net sales reported by exporters were within expectations with net sales of 3.4 million bushels for the 2017/18 marketing year and 20.0 million bushels for the 2018/19 marketing year. Exports for the same period were up 26 percent compared to last week at 31.5 million bushels. Soybean export sales and commitments were 102 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 103 percent. September soybean-to-corn price ratio was 2.41 at the end of the week.
   Sep/Nov and Sep/Jan future spreads were 11 and 22 cents, respectively. The Crop Progress report estimated soybean condition at 70 percent good-to-excellent and 8 percent poor-to-very poor; soybeans blooming at 86 percent compared to 78 percent last week, 80 percent last year, and a 5-year average of 77 percent; and soybeans setting pods at 60 percent compared to 44 percent last week, 45 percent last year, and a 5-year average of 41 percent. In Tennessee, soybean condition was estimated at 84 percent good-to-excellent and 5 percent poor-to-very poor; soybeans blooming at 84 percent compared to 72 percent last week, 83 percent last year, and a 5-year average of 68 percent; and soybeans setting pods at 55 percent compared to 38 percent last week, 50 percent last year, and a 5-year average of 40 percent. In Tennessee, Oct/Nov 2018 soybean cash contracts average $8.72 with a range of $8.51 to $9.04. November 2018 soybean futures closed at $9.02, up 17 cents since last Friday. Downside price protection could be achieved by purchasing a $9.10 November 2018 Put Option which would cost 40 cents and set an $8.70 futures floor. Nov/Dec 2018 soybean-to-corn price ratio was 2.35 at the end of the week. January 2019 soybean futures closed at $9.13, up 18 cents since last Friday.
   Cotton
   Delta upland cotton spot price quotes for August 2 were 87.94 cents/lb (41-4-34) and 89.69 cents/lb (31-3-35). Adjusted World Price (AWP) increased 1.35 cents to 80.06 cents. Net sales reported by exporters were up from last week with net sales of 19,600 bales for the 2017/18 marketing year and 261,200 bales for the 2018/19 marketing year. Exports for the same period were down 12 percent compared to last week at 259,100 bales. Upland cotton export sales were 108 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 106 percent.
   The Crop Progress report estimated cotton condition at 43 percent good-to-excellent and 30 percent poor-to-very poor; cotton squaring at 88 percent compared to 78 percent last week, 86 percent last year, and a 5-year average of 89 percent; and cotton setting bolls at 49 percent compared to 41 percent last week, 45 percent last year, and a 5-year average of 48 percent. In Tennessee, cotton condition was estimated at 90 percent good-to-excellent and 2 percent poor-to-very poor; cotton squaring at 98 percent compared to 97 percent last week, 96 percent last year, and a 5-year average of 91 percent; and cotton setting bolls at 70 percent compared to 50 percent last week, 62 percent last year, and a 5-year average of 52 percent. December 2018 cotton futures closed at 88.12, down 0.22 cents since last Friday. For the week,     December 2018 cotton futures traded between 86.76 and 89.98 cents. Dec/Mar and Dec/Dec cotton futures spreads were -0.04 cents and -6.7 cents, respectively. Downside price protection could be obtained by purchasing an 89 cent December 2018 Put Option costing 5.57 cents establishing an 83.43 cent futures floor. March 2019 cotton futures closed at 88.08, down 0.06 cents since last Friday. December 2019 cotton futures closed at 81.42, up 1.02 cents since last Friday.
   Wheat
   In Tennessee, August 2018 cash wheat ranged from $5.36 to $6.12 for the week. Wheat net sales reported by exporters were within expectations with net sales of 14.1 million bushels for the 2018/19 marketing year. Exports for the week were down 6 percent compared to last week at 14.2 million bushels. Wheat export sales were 27 percent of the USDA estimated total annual exports for the 2018/19 marketing year (June 1 to May 31), compared to a 5-year average of 42 percent. The Crop Progress report estimated winter wheat harvested at 85 percent compared to 80 percent last week, 87 percent last year, and a 5-year average of 86 percent; spring wheat condition at 78 percent good-to-excellent and 4 percent poor-to-very poor; and spring wheat harvested at 4 percent compared to 8 percent last year and a 5-year average of 4 percent. ∆
   DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
MidAmerica Farm Publications, Inc
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