Cotton Futures Set New Contract Lows This Week

DR. AARON SMITH

KNOXVILLE, TENN.
   December corn futures are poised to take out the current contract high of $4.73 (June 17). For the US crop three key questions remain unsolved: 1) How many acres have been planted?; 2) What is the impact on average yield by planting into challenging conditions?; and 3) What will weather bring between now and a late harvest? All three questions have wide ranging estimates that are based predominantly on speculation or inadequate information. Fortunately, in Tennessee the corn crop is in relatively good condition – compared to other states.     Taking the futures/cash price risk out of some 2019 bushels when futures prices are north of $4.50 should be strongly considered.
   Currently, soybean markets are very difficult to predict, which indicates that more volatility is likely in the cards. The current USDA estimate of 80 million acres planted is likely low due to the late planting of both corn (unplanted corn acres could switch to soybeans) and soybean in many areas. Additionally, yield estimates have been reduced but have more upside potential if weather cooperates than corn.     Lastly, trade continues to be an unpredictable wild card with the on again off again trade talks with China. $9.30 harvest futures prices are unlikely to promote additional sales from producers, however it is important to remember that the down side in soybeans is very prevalent given domestic and global stocks, trade with China, and the impact of African swine fever on meal demand. Strategies that provide downside price protection should be strongly considered.
   Cotton futures set new contract lows this week. On Friday, the new low for the December ’19 contract was set at 62.60 cents. Continued weakness in cotton is likely. Global production is projected to exceed global consumption, plus adequate moisture across Texas provides an initial indication of lower than typical abandonment in the US is likely.
   On Thursday the USDA released the July WASDE report. Analysis of the report and market reaction for corn, soybeans, wheat, and cotton is available at: https://ag.tennessee.edu/arec/Pages/MonthlyCropComments.aspx
   Corn
   Ethanol production for the week ending July 5 was 1.047 million barrels per day, down 34,000 from the previous week. Ethanol stocks were 23.009 million barrels, up 165,000 barrels. Corn net sales reported by exporters for June 28-July 4 were up from last week with net sales of 19.9 million bushels for the 2018/19 marketing year and 4.3 million bushels for the 2019/20 marketing year. Exports for the same time period were up 80 percent from last week at 44.7 million bushels. Corn 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 the previous 5-year average of 101 percent. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened at Memphis, Northwest Barge Points, Upper-middle, and Northwest Tennessee. Overall, basis for the week ranged from 2 over to 26 over with an average of 11 over the September futures at elevators and barge points. September 2019 corn futures closed at $4.54, up 16 cents since last Friday. For the week,    September 2019 corn futures traded between $4.26 and $4.55. Sep/Dec (’19) and Sep/Dec (‘20) future spreads were 5 and -32 cents.
Nationally, the Crop Progress report estimated corn condition at 57 percent good-to-excellent and 12 percent poor-to-very poor; corn emerged at 98 percent compared to 94 percent last week, 100 percent last year, and a 5-year average of 100 percent; and corn silking at 8 percent compared to 34 percent last year and a 5-year average of 22 percent. In Tennessee, the Crop Progress report estimated corn condition at 79 percent good-to-excellent and 4 percent poor-to-very poor, 22 percent last year, and a 5-year average of 9%. In Tennessee, September 2019 corn cash forward contracts averaged $4.33 with a range of $4.06 to $4.56. December 2019 corn futures closed at $4.59, up 17 cents since last Friday. Downside price protection could be obtained by purchasing a $4.60 December 2019 Put Option costing 34 cents establishing a $4.26 futures floor. December 2020 corn futures closed at $4.22, up 4 cents since last Friday.
   Soybeans
   Net sales reported by exporters were down compared to last week with net sales of 4.9 million bushels for the 2018/19 marketing year and 4.8 million bushels for the 2019/20 marketing year. Exports for the same period were down 5 percent compared to last week at 25.4 million bushels. Soybean export sales and commitments were 105% of the USDA estimated total annual exports for the 2018/19 marketing year (September 1 to August 31), compared to the previous 5-year average of 102 percent. Average soybean basis strengthened at Memphis and Northwest Barge Points and weakened at Northwest and Upper-middle Tennessee. Basis ranged from 55 under to 15 over the August futures contract at elevators and barge points. Average basis at the end of the week was 11 under the August futures contract. August 2019 soybean futures closed at $9.13, up 37 cents since last Friday. For the week, August 2019 soybean futures traded between $8.71 and $9.13. August/September soybean-to-corn price ratio was 2.01 at the end of the week. September 2019 soybean futures closed at $9.19, up 37 cents since last Friday. Aug/Sep and Aug/Nov future spreads were 6 and 18 cents.
   Nationally, the Crop Progress report estimated soybean condition at 53 percent good-to-excellent and 12 percent poor-to-very poor; and soybeans blooming at 10 percent compared to 44 percent last week and a 5-year average of 32 percent. In Tennessee, the Crop Progress report estimated soybean condition at 77 percent good-to-excellent and 6 percent poor-to-very poor; soybeans planted at 97 percent compared to 94 percent last week, 98 percent last year, and a 5-year average of 95 percent; soybeans emerged at 90 percent compared to 85 percent last week, 95 percent last year, 39 percent last year, and a 5-year average of 27 percent; and soybeans setting pods at 3 percent compared to 9 percent last year and a 5-year average of 4 percent. In Tennessee, October/November 2019 soybean cash contracts average $8.77 with a range of $8.32 to $9.15. November 2019 soybean futures closed at $9.31, up 37 cents since last Friday. Downside price protection could be achieved by purchasing a $9.40 November 2019 Put Option which would cost 45 cents and set an $8.95 futures floor. Nov/Dec 2019 soybean-to-corn price ratio was 2.03 at the end of the week.
   Cotton
   Net sales reported by exporters were down compared to last week with net sales of 53,400 bales for the 2018/19 marketing year and 38,400 bales for the 2019/20 marketing year. Exports for the same time period were down 2 compared to last week at 333,200 bales. Upland cotton export sales were 112 percent of the USDA estimated total annual exports for the 2018/19 marketing year (August 1 to July 31), compared to the previous 5-year average of 106 percent. Delta upland cotton spot price quotes for July 11 were 58.64 cents/lb (41-4-34) and 60.89 cents/lb (31-3-35). Adjusted World Price (AWP) decreased 1.27 cents to 58.05 cents.
   Nationally, the Crop Progress report estimated cotton condition at 54 percent good-to-excellent and 19 percent poor-to-very poor; cotton squaring at 47 percent compared to 37 percent last week, 57 percent last year, and a 5-year average of 54 percent; and cotton setting bolls at 13 percent compared to 7 percent last week. In Tennessee, the Crop Progress report estimated cotton condition at 61 percent good-to-excellent and 15 percent poor-to-very poor; cotton squaring at 54 percent compared to 45 percent last week, 79 last year, and a 5-year average of 66 percent; and cotton setting bolls at 6 percent compared to 1 percent last week, 18 percent last year, and a 5-year average of 11 percent. December 2019 cotton futures closed at 62.68, down 4.14 cents since last Friday. For the week, December 2019 cotton futures traded be-tween 62.6 and 67.1 cents. Dec/Mar and Dec/Dec cotton futures spreads were 1.06 cent and 2.88 cents. Downside price protection could be obtained by purchasing a 63 cent December 2019 Put Option costing 3.09 cents establishing a 59.91 cent futures floor. March 2020 cotton futures closed at 63.74, down 4.08 cents since last Friday. December 2020 cotton futures closed at 65.56, down 1.95 cents since last Friday.
   Wheat
   Nationally, the Crop Progress report estimated winter wheat condition at 64 percent good-to-excellent and 10 percent poor-to-very-poor; winter wheat harvested at 47 percent compared to 30 percent last week, 61 percent last year, and a 5-year average of 61 percent; spring wheat condition at 78 percent good-to-excellent and 3 percent poor-to-very poor. In Tennessee, the Crop Progress report estimated winter wheat harvested at 98 percent compared to 91 percent last week, 97 percent last year, and a 5-year average of 93 percent. In Tennessee, July 2019 wheat cash contracts ranged from $4.82 to $5.37 for the week.
   Wheat net sales reported by exporters were up compared to last week with net sales of 10.4 million bushels for the 2019/20 marketing year. Exports for the same time period were down 10 percent from last week at 24.2 million bushels. Wheat export sales were 31 percent of the USDA estimated total annual exports for the 2019/20 marketing year (June 1 to May 31), compared to the previous 5-year average of 33 percent. September 2019 wheat futures closed at $5.23, up 8 cents since last Friday. September 2019 wheat futures traded between $4.98 and $5.25 this week. September wheat-to-corn price ratio was 1.15. Sep/Dec and Sep/Jul future spreads were 12 and 30 cents. December 2019 wheat futures closed at $5.35, up 10 cents since last Friday. July 2020 wheat futures closed at $5.53, up 12 cents since last Friday. Downside price protection could be obtained by purchasing a $5.60 July 2020 Put Option costing 43 cents establishing a $5.17 futures floor. ∆
   DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee

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