Bearish Report Shows Corn Down, Soybeans, Wheat Up

DR. AARON SMITH

KNOXVILLE, TENN.
   On Friday, the USDA released the much anticipated quarterly Grain Stocks report. The September report provides estimates of corn and soybean stocks at the end of the most recent marketing year (2017/18) and an estimate of wheat stocks as of September 1. The USDA report is available online at: https://release.nass.usda.gov/reports/grst0918.pdf.
   As of September 1, corn stocks were estimated at 2.14 billion bushels, down 153 million (7 percent) from last year and 138 million greater than the 2.002 billion bushels estimated in the September WASDE; soybean stocks were estimated at 438 million bushels, up 136 million (45 percent) from last year and 43 million greater than the 395 million bushels estimated in the September WASDE; and wheat stocks were estimated at 2.379 billion bushels, up 113 million (5 percent) from last year. Overall, the report was decidedly bearish with the estimates at or exceeding the upper end of the pre-report range.
   The market reacted quickly with corn futures down 8-9 cents, soybeans down 9-10 cents, and wheat down 3-4 cents. The move wiped out early weak gains for corn and soybeans and pushed wheat lower (down 12-15 cents for the week). It will be interesting to see if corn and soybean futures prices are able to resume the upward momentum of the past 10 trading days or if prices reverse and move lower to retest contract lows. Early price action next week will be critical to avoid further price softness as harvest continues to progress.
   December cotton futures continue to move lower with the six month low of 75.9 the next test of support. Cotton is down 18.45 cents from the June 8th high of 84.82. Reduced abandonment in Texas, improved U.S. yields, and trade uncertainty continue to weigh heavily on the market.
   Corn
   Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis, North-west Barge Points, Northwest, Upper-middle, and Lower-middle Tennessee. Overall, basis for the week ranged from 36 under to 12 under the December futures contract with an average of 23 under at the end of the week. December 2018 corn futures closed at $3.56, down 1 cent since last Friday. For the week, December 2018 corn futures traded between $3.54 and $3.66. Corn net sales reported by exporters from September 14-20 were above expectations with net sales of 67.4 million bushels for the 2018/19 marketing year and net sales cancellation of 0.4 million bushels for the 2019/20 marketing year. Exports for the same time period were up 26 percent compared to last week at 53.5 million bushels. Corn 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 27 percent. Ethanol production for the week ending September 21 was 1.036 million barrels per day, down 15,000 from the previous week. Ethanol stocks were 22.629 million barrels, down 117,000 barrels. Dec/Mar and Dec/Dec future spreads were 12 and 35 cents, respectively.
   The Crop Progress report estimated corn condition at 69 percent good-to-excellent and 12 percent poor-to-very poor; corn dented at 97 percent compared to 93 percent last week, 92 percent last year, and a 5-year average of 93 percent; corn mature at 72 percent compared to 54 percent last week, 49 percent last year, and a 5-year average of 53%; and corn harvested at 16% compared to 9% last week, 10% last year, and a 5-year average of 11%. In Tennessee, corn condition was estimated at 76% good-to-excellent and 4% poor-to-very poor; corn mature at 93% compared to 84% last week, 94% last year, and a 5-year average of 89%; and corn harvested at 60% compared to 40% last week, 57% last year, and a 5-year average of 43%. In Tennessee, January 2019 corn cash forward contracts averaged $3.63 with a range of $3.31 to $3.88. March 2019 corn futures closed at $3.68, down 1 cent since last Friday. December 2019 corn futures closed at $3.91, down 2 cents since last Friday. Downside price protection could be obtained by purchasing a $4.00 December 2019 Put Option costing 32 cents establishing a $3.68 futures floor.
   Soybeans
   Average soybean basis strengthened or remained unchanged at Memphis, Northwest Barge Points, Lower-middle, Upper-middle, and Northwest Tennessee. Basis ranged from 76 under to 45 under the November futures contract at elevators and barge points. Average basis at the end of the week was 56 under the November futures contract. November 2018 soybean futures closed at $8.45, down 2 cents since last Friday. For the week, November 2018 soybean futures traded between $8.37 and $8.59. Net sales reported by exporters were within expectations with net sales of 32 million bushels for the 2018/19 marketing year and 0.06 million bushels for the 2019/20 marketing year. Exports for the same period were up 2 percent compared to last week at 30.1 million bushels. Soybean export sales and commitments were 34 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 46 percent. Nov/Dec 2018 soybean-to-corn price ratio was 2.37 at the end of the week.
   Nov/Jan and Nov/Nov future spreads were 14 and 67 cents, respectively. The Crop Progress report estimated soybean condition at 68 percent good-to-excellent and 10 percent poor-to-very poor; soybeans dropping leaves at 71 percent compared to 53 percent last week, 60 percent last year, and a 5-year average of 57 percent; and soybeans harvested at 14 percent compared to 6 percent last week, 9 percent last year, and a 5-year average of 8 percent. In Tennessee, soybean condition was estimated at 74 percent good-to-excellent and 4 percent poor-to-very poor; soybeans dropping leaves at 60 percent compared to 41 percent last week, 52 percent last year, and a 5-year average of 49 percent; and soybeans harvested at 16 percent compared to 8 percent last week, 6 percent last year, and a 5-year average of 8 percent. In Tennessee, Oct/Nov 2018 soybean cash contracts average $7.87 with a range of $7.53 to $8.10. January 2019 soybean futures closed at $8.59, down 2 cents since last Friday. November 2019 soybean futures closed at $9.12, unchanged since last Friday. Downside price protection could be achieved by purchasing a $9.20 November 2019 Put Option which would cost 60 cents and set an $8.60 futures floor. Nov/Dec 2019 soybean-to-corn price ratio was 2.33 at the end of the week.
   Cotton
   Delta upland cotton spot price quotes for September 27 were 76.47 cents/lb (41-4-34) and 78.22 cents/lb (31-3-35). Adjusted World Price (AWP) decreased 1.65 cents to 69.94 cents. Net sales reported by exporters were down from last week at 70,300 bales for the 2018/19 marketing year and 58,200 for the 2019/20 marketing year. Exports for the same time period were 138,900 bales, down 7 percent from last week. Upland cotton export sales were 62 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 42 percent.
   The Crop Progress report estimated cotton condition at 39 percent good-to-excellent and 29 percent poor-to-very poor; cotton opening bolls at 58 percent compared to 49 percent last week, 55 percent last year, and a 5-year average of 57 percent; and cotton harvested at 16 percent compared to 13 percent last week, 14 percent last year, and a 5-year average of 9 percent. In Tennessee, cotton condition was estimated at 79 percent good-to-excellent and 4 percent poor-to-very poor; cotton bolls opening at 93 percent compared to 80 percent last week, 63 percent last year, and a 5-year average of 59 percent; and cotton harvested at 12 percent compared to 2 percent last week, 1 percent last year, and a 5-year average of 3 percent. December 2018 cotton futures closed at 76.37, down 2.76 cents since last Friday. For the week, December 2018 cotton futures traded between 76.27 and 78.42 cents. Dec/Mar and Dec/Dec cotton futures spreads were 0.92 cents and -0.6 cents, respectively. March 2019 cotton futures closed at 77.29, down 2.22 cents since last Friday. December 2019 cotton futures closed at 75.77, down 0.83 cents since last Friday. Downside price protection could be obtained by purchasing a 76 cent December 2019 Put Option costing 4.9 cents establishing a 71.1 cent futures floor.
   Wheat
   In Tennessee, September 2018 cash wheat ranged from $5.22 to $5.64 for the week. Wheat net sales reported by exporters were above expectations with net sales of 24.1 million bushels for the 2018/19 marketing year. Exports for the week were up 54 percent compared to last week at 11.6 million bushels. Wheat export sales were 39 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 57 percent. The Crop Progress report estimated winter wheat planted at 28 percent compared to 13 percent last week, 22 percent last year, and a 5-year average of 26 percent. In Tennessee, winter wheat planted was estimated at 9 percent compared to 3 percent last week.
   December 2018 wheat futures closed at $5.09, down 12 cents since last Friday. December 2018 wheat futures traded between $5.05 and $5.31 this week. December wheat-to-corn price ratio was 1.43. Dec/Mar and Dec/Jul future spreads were 18 cents and 31 cents, respectively. March 2019 wheat futures closed at $5.27, down 13 cents since last Friday. In Tennessee, June/July 2019 wheat cash contracts ranged from $5.47 to $5.65 for the week. July 2019 wheat futures closed at $5.40, down 15 cents since last Friday. Downside price protection could be obtained by purchasing a $5.50 July 2019 Put Option costing 42 cents establishing a $5.08 futures floor. ∆
   DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee

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