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Large Crops Could Mean Further 'Leg Down' In Futures
DR. AARON SMITH
KNOXVILLE, TENN.
The major news this week was USDA’s updated yield estimates. Nationally, corn, soybean, and upland cotton yields were estimated at 181.3 bu/acre, 52.8 bu/acre, and 881 lb/acre. Corn and soybean estimates were revised up 2.9 bu/acre and 1.2 bu acre from last month – if realized both would be all-time records. Upland cotton yield was decreased 14 lb/acre from last month.
The larger than anticipated, corn and soybean yields contributed to December corn and November soybeans setting new contract lows of $3.48/bu and $8.21/bu. With the large crop headed towards market and no foreseeable end to trade disruptions a further leg down in futures prices cannot be ruled out at this time.
In Tennessee, corn yields were left unchanged at 174 bu/acre; soybean yield was increased 2 bu/acre to 51 bu/acre; and cotton yield was increased 32 lb/acre to 1,082 lb/acre. Corn and soybean yields would be all-time state records and cotton would be the second highest on record – 22 lbs under 2016’s all-time high.
A combination of factors have led to low cash soybean and corn prices this harvest season. The three most prevalent are the large carryover stocks from the past marketing year, trade disruptions, and record yields. Unfortunately for prices, the combination of those three factors has led to futures market declines and substantial decreases in harvest basis in many parts of the country (including Tennessee), resulting in steep declines in cash prices. Currently, less than 1/3 of the corn crop and 1/10 of the soybean crop has been harvested in Tennessee. As such, further price declines are possible. Producers should consider storage options on- and off-farm as well as other marketing strategies to try and extend the marketing interval.
Details of the latest USDA WASDE for corn, soybeans, cotton, and wheat are available online at: https://ag.tennessee.edu/arec/Pages/MonthlyCropComments.aspx.
Corn
Across Tennessee, average corn basis (cash price-nearby futures price) weakened or remained unchanged at Memphis, Northwest Barge Points, Upper-middle, and Lower-middle Tennessee and strengthened at Northwest Tennessee. Overall, basis for the week ranged from 40 under to 10 under the December futures contract with an average of 24 under at the end of the week. December 2018 corn futures closed at $3.51, down 16 cents since last Friday. For the week, December 2018 corn futures traded between $3.48 and $3.69. Corn net sales reported by exporters from August 31-September 6, 2018 were below expectations with net sales of 30.5 million bushels for the 2018/19 marketing year. Exports for the same time period were down 18 percent compared to last week at 39.0 million bushels. For the marketing year ended August 31, 115.2 million bushels of sales were carried over into 2018/19. Total accumulated exports for 2017/18 were 2.263 billion bushels, up 4 percent from the previous year. Corn export sales and commitments were 25 percent of the USDA estimated total annual exports for the 2018/19 marketing year (September 1 to August 31) compared to a 5-year average of 24 percent. Ethanol production for the week ending September 7 was 1.020 million barrels per day, down 67,000 from the previous week. Ethanol stocks were 22.894 million barrels, up 193,000 barrels. Dec/Mar and Dec/Dec future spreads were 12 and 39 cents, respectively.
The Crop Progress report estimated corn condition at 68 percent good-to-excellent and 12 percent poor-to-very poor; corn dented at 86 percent compared to 75 percent last week, 73 percent last year, and a 5-year average of 75 percent; corn mature at 35 percent compared to 22 percent last week, 20 percent last year, and a 5-year average of 21 percent; and corn harvested at 5 percent compared to 5 percent last year and a 5-year average of 3 percent. In Tennessee, corn condition was estimated at 71 percent good-to-excellent and 8 percent poor-to-very poor; corn dented at 97 percent compared to 93 percent last week, 95 percent last year, and a 5-year average of 95 percent; corn mature at 73 percent compared to 47 percent last week, 76 percent last year, and a 5-year average of 62 percent; and corn harvested at 23 percent compared to 9 percent last week, 21 percent last year, and a 5-year average of 20 percent. In Tennessee, January 2019 corn cash forward contracts averaged $3.54 with a range of $3.20 to $3.86. March 2019 corn futures closed at $3.63, down 16 cents since last Friday. December 2019 corn futures closed at $3.90, down 6 cents since last Friday. Downside price protection could be obtained by purchasing a $4.00 December 2019 Put Option costing 33 cents establishing a $3.67 futures floor.
Soybeans
Average soybean basis weakened or remained unchanged at Memphis, Northwest Barge Points, Lower-middle, and Northwest Tennessee and strengthened at Upper-middle Tennessee. Basis ranged from 76 under to 50 under the November futures contract at elevators and barge points. Average basis at the end of the week was 63 under the November futures contract. November 2018 soybean futures closed at $8.30, down 14 cents since last Friday. For the week, November 2018 soybean futures traded between $8.21 and $8.51. Net sales reported by exporters were within expectations with net sales of 25.5 million bushels for the 2018/19 marketing year. Exports for the same period were up 15 percent compared to last week at 41.8 million bushels. For the marketing year ended August 31, 89.3 million bushels of sales were carried over into 2018/19. Total accumulated exports for 2017/18 were 2.072 billion bushels, down 3 percent from the previous year. Soybean export sales and commitments were 30 percent of the USDA estimated total annual exports for the 2018/19 marketing year (September 1 to August 31), compared to a 5-year average of 39 percent. Nov/Dec 2018 soybean-to-corn price ratio was 2.36 at the end of the week.
Nov/Jan and Nov/Nov future spreads were 14 and 61 cents, respectively. The Crop Progress report estimated soybean condition at 68 percent good-to-excellent and 10 percent poor-to-very poor; and soybeans dropping leaves at 31 percent compared to 16 percent last week, 20 percent last year, and a 5-year average of 19 percent. In Tennessee, soybean condition was estimated at 69 percent good-to-excellent and 8 percent poor-to-very poor; soybeans dropping leaves at 23 percent compared to 9 percent last week, 21 percent last year, and a 5-year average of 20 percent; and soybeans harvested at 3 percent. In Tennessee, Oct/Nov 2018 soybean cash contracts average $7.75 with a range of $7.52 to $8.03. January 2019 soybean futures closed at $8.44, down 13 cents since last Friday. November 2019 soybean futures closed at $8.91, down 8 cents since last Friday. Downside price protection could be achieved by purchasing a $9.00 November 2019 Put Option which would cost 59 cents and set an $8.41 futures floor. Nov/Dec 2019 soybean-to-corn price ratio was 2.28 at the end of the week.
Cotton
Delta upland cotton spot price quotes for September 13 were 80.12 cents/lb (41-4-34) and 81.87 cents/lb (31-3-35). Adjusted World Price (AWP) increased 0.02 cents to 73.79 cents. Net sales reported by exporters were up from last week at 81,700 bales for the 2018/19 marketing year and 17,700 for the 2019/20 marketing year. Exports for the same time period were 135,700 bales, down 23 percent from last week. Upland cotton export sales were 60 percent of the USDA estimated total annual exports for the 2018/19 marketing year (August 1 to July 31), compared to a 5-year average of 40 percent.
The Crop Progress report estimated cotton condition at 38 percent good-to-excellent and 34 percent poor-to-very poor; cotton opening bolls at 39 percent compared to 29 percent last week, 33 percent last year, and a 5-year average of 35 percent; and cotton harvested at 10 percent compared to 8 percent last year and a 5-year average of 5 percent. In Tennessee, cotton condition was estimated at 80 percent good-to-excellent and 4 percent poor-to-very poor; and cotton bolls opening at 68 percent compared to 52 percent last week, 29 percent last year, and a 5-year average of 31 percent. December 2018 cotton futures closed at 81.83, down 0.16 cents since last Friday. For the week, December 2018 cotton futures traded between 81.35 and 83.93 cents. Dec/Mar and Dec/Dec cotton futures spreads were 0.31 cents and -4.22 cents, respectively. March 2019 cotton futures closed at 82.14, down 0.26 cents since last Friday. December 2019 cotton futures closed at 77.61, down 0.12 cents since last Friday. Downside price protection could be obtained by purchasing a 78 cent December 2019 Put Option costing 5.42 cents establishing a 72.58 cent futures floor.
Wheat
In Tennessee, September 2018 cash wheat ranged from $5.18 to $5.65 for the week. Wheat net sales reported by exporters were within expectations with net sales of 14.2 million bushels for the 2018/19 marketing year. Exports for the week were up 50 percent compared to last week at 15.8 million bushels. Wheat export sales were 35 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 53 percent. The Crop Progress report estimated winter wheat planted at 5 percent compared to 5 percent last year and a 5-year average of 5 percent; and spring wheat harvested at 93 percent compared to 87 percent last week, 94 percent last year, and a 5-year average of 85 percent.
December 2018 wheat futures closed at $5.11, unchanged since last Friday. December 2018 wheat futures traded between $4.95 and $5.18 this week. December wheat-to-corn price ratio was 1.46. Dec/Mar and Dec/Jul future spreads were 19 cents and 39 cents, respectively. March 2019 wheat futures closed at $5.3, down 1 cent since last Friday. In Tennessee, June/July 2019 wheat cash contracts ranged from $5.38 to $5.66 for the week. July 2019 wheat futures closed at $5.50, up 88 cents since last Friday. Downside price protection could be obtained by purchasing a $5.60 July 2019 Put Option costing 46 cents establishing a $5.14 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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