Prices Headed For New Crop Harvest Contract Lows

DR. AARON SMITH

KNOXVILLE, TENN.
   Commodity prices took a nose dive this week as trade negotiations between the U.S. and China appeared to back track substantially. For the week, cotton was down triple digits, while corn and wheat were down 13-19 cents and soybeans were down over 30 cents. Trade disruptions and large global supplies have prices headed for new crop harvest contract lows.
   Since April 10th, 2019 harvest soybean, wheat, and cotton futures have dropped $1.01 ¼ (11 percent), 39.75 cents (11 percent), and 7.62 cents (10 percent). The 10 percent drop in the futures value of the commodities can be attributed to several factors – large global supplies, a large South American crop, good weather conditions in the U.S. and other key global production regions, and concerns over a reduction in feed demand due to African Swine Flu, to name a few. However, trade is undoubtedly a large driver in price declines.
   Consider that 47 percent of U.S. soybean production, 47 percent of U.S. wheat production, and 77 percent of U.S. cotton production is projected for export for the 2019 crop. By comparison, corn exports are projected at 15 percent of the crop and harvest futures have dropped 18 ¾ cents (5 percent). This is an over simplification of very complex global market dynamics, however, in general, commodities that have a larger share of production exported will be disproportionately affected (good or bad) by global (or individual county) trade disputes. Hopefully, U.S. trade negotiations with China can get back on track, allowing global trade to resume in a less encumbered environment.
   Today the USDA released the May WASDE report. The MAY WASDE report provides the initial estimates for the 2019/20 marketing year. A detailed analysis of the report for corn, soybeans, cotton, and wheat will be emailed and available Monday at:
https://ag.tennessee.edu/arec/Pages/MonthlyCropComments.aspx
   Corn
   Ethanol production for the week ending May 3 was 1.036 million barrels per day, up 12,000 from the previous week. Ethanol stocks were 22.468 million barrels, down 227,000 barrels. Corn net sales reported by exporters from April 26-May 2 were down from last week at 11.3 million bushels for the 2018/19 marketing year and 0.3 million bushels for the 2019/20 marketing year. Exports for the same time period were down 16 percent from last week at 45.4 million bushels. Corn export sales and commitments were 79 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 90 percent. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened at Memphis, Northwest Barge Points, and Upper-middle Tennessee and weakened at Northwest Tennessee. Overall, basis for the week ranged from 10 under to 32 over with an average of 4 over the July futures at elevators and barge points at the end of the week. July 2019 corn futures closed at $3.51, down 19 cents since last Friday. For the week, July 2019 corn futures traded between $3.45 and $3.68. Jul/Sep and Jul/Dec future spreads were 10 and 21 cents.
   Nationally, the Crop Progress report estimated corn planted at 23 percent compared to 15 percent last week, 36 percent last year, and a 5-year aver-age of 46 percent; and corn emerged at 6 percent compared to 3 percent last week, 7 percent last year, and a 5-year average of 13 percent. In Tennessee, the Crop Progress report estimated corn planted at 65 percent compared to 41 percent last week, 61 percent last year, and a 5-year average of 70 percent; and corn emerged at 36 percent compared to 19 percent last week, 20 percent last year, and a 5-year average of 38 percent. In Tennessee, September 2019 corn cash forward contracts averaged $3.55 with a range of $3.32 to $3.71. September 2019 corn futures closed at $3.61, down 16 cents since last Friday. December 2019 corn futures closed at $3.72, down 15 cents since last Friday. Downside price protection could be obtained by purchasing a $3.80 December 2019 Put Option costing 28 cents establishing a $3.52 futures floor.
   Soybeans
   Net sales reported by exporters were down compared to last week with net sales cancelations of 5.5 million bushels for the 2018/19 marketing year and net sales of 10.9 million bushels for the 2019/20 marketing year. Exports for the same period were up 7 percent compared to last week at 22.3 million bushels. Soybean export sales and commitments were 88 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 97 percent. Average soybean basis strengthened at Memphis, Northwest, and Upper-middle Tennessee and weakened at Northwest Barge Points. Basis ranged from 53 under to 3 over the July futures contract at elevators and barge points. Average basis at the end of the week was 22 under the July futures contract. July 2019 soybean futures closed at $8.09, down 33 cents since last Friday. For the week, July 2019 soybean futures traded between $8.06 and $8.36. July soybean-to-corn price ratio was 2.30 at the end of the week. August 2019 soybean futures closed at $8.15, down 33 cents since last Friday. Jul/Aug and Jul/Nov future spreads were 6 and 24 cents.
   Nationally, the Crop Progress report estimated soybeans planted at 6 percent compared to 3 percent last week, 14 percent last year, and a 5-year average of 14 percent. In Tennessee, the Crop Progress report estimated soybeans planted at 9 percent compared to 3 percent last week, 6 percent last year, and a 5-year average of 9 percent. In Tennessee, October/November 2019 soybean cash contracts average $8.06 with a range of $7.70 to $8.33. November 2019 soybean futures closed at $8.33, down 31 cents since last Friday. Downside price protection could be achieved by purchasing an $8.40 November 2019 Put Option which would cost 43 cents and set a $7.97 futures floor. Nov/Dec 2019 soybean-to-corn price ratio was 2.24 at the end of the week.
   Cotton
   Net sales reported by exporters were up compared to last week at 235,800 bales for the 2018/19 marketing year and 56,500 bales for the 2019/20 marketing year. Exports for the same time period were up 32 percent compared to last week at 387,100 bales. Upland cotton export sales were 101 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 99 percent. Delta upland cotton spot price quotes for May 10 were 63.95 cents/lb (41-4-34) and 66.20 cents/lb (31-3-35). Adjusted World Price (AWP) decreased 3.62 cents to 64.65 cents. July 2019 cotton futures closed at 68.45, down 7.23 cents since last Friday. For the week, July 2019 cotton futures traded between 68.35 and 75.02 cents. Jul/Oct and Jul/Dec cotton futures spreads were 1.2 cents and 0.95 cents. October 2019 cotton futures closed at 69.65, down 4.63 cents since last Friday.
   Nationally, the Crop Progress report estimated cotton planted at 18 percent compared to 11 percent last week, 19 percent last year, and a 5-year average of 19 percent. In Tennessee, the Crop Progress report estimated cotton planted at 12 percent compared to 1 percent last week, 9 percent last year, and a 5-year average of 11 percent. December 2019 cotton futures closed at 69.4, down 5.08 cents since last Friday. Downside price protection could be obtained by purchasing a 70 cent December 2019 Put Option costing 4.0 cents establishing a 66 cent futures floor.
   Wheat
   Wheat net sales reported by exporters were up compared to last week at 3.3 million bushels for the 2018/19 marketing year and 15.1 million bushels for the 2019/20 marketing year. Exports for the same time period were up 20 percent from last week at 24.4 million bushels. Wheat export sales were 100 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 105 percent. Nationally, the Crop Progress report estimated winter wheat condition at 64 percent good-to-excellent and 8 percent poor-to-very-poor; winter wheat headed at 29 percent compared to 19 percent last week, 31 percent last year, and a 5-year average of 41 percent; spring wheat planted at 22 percent compared to 13 percent last week, 27 percent last year, and a 5-year average of 49 percent; and spring wheat emerged at 4 percent compared to 4 percent last year and a 5-year average of 19 percent. In Tennessee, winter wheat condition was estimated at 59 percent good-to-excellent and 9 percent poor-to-very poor; winter wheat jointing at 97 percent compared to 94 percent last week, 94 percent last year, and a 5-year average of 94 percent; and winter wheat headed at 78 percent compared to 42 percent last week, 62 percent last year, and a 5-year average of 65 percent. In Tennessee, June/July 2019 wheat cash contracts ranged from $4.14 to $4.65 for the week. July 2019 wheat futures closed at $4.24, down 14 cents since last Friday. July 2019 wheat futures traded between $4.21 and $4.43 this week. Downside price protection could be obtained by purchasing a $4.25 July 2019 Put Option costing 14 cents establishing a $4.11 futures floor. July wheat-to-corn price ratio was 1.21. Jul/Sep and Jul/Jul future spreads were 9 and 50 cents.
   September 2019 wheat futures closed at $4.33, down 13 cents since last Friday. July 2020 wheat futures closed at $4.740, down 16 cents since last Friday. ∆
   DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
MidAmerica Farm Publications, Inc
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