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Cotton Exports Projected At 16.5 Million Bales, Highest In The Past 5-Years
DR. AARON SMITH
KNOXVILLE, TENN.
The USDA released the November WASDE on Friday, Overall the report was supportive for corn and cotton futures prices and bearish for wheat and soybeans. Immediately after the report was released corn and cotton futures increased 10 cents and 0.5 cents, before giving back some of the gains during the remainder of the trading session.
The positive futures price reaction in corn was largely attributed to a 1.4 bu/acre decrease in U.S. average yield and a projected 259 million bushel year-over-year reduction in global corn stocks. However, the news was not all positive for corn as exports (50 million bushels), feed & residual (25 million bushels), and ethanol (25 million bushels) use were all decreased. Moving forward the bearish price trigger will likely be signs of weak demand, while bullish news will most likely come from reduced harvested acres/yield prospects in northern states due to cold wet weather and the lateness of the crop. In the short term, nearby futures prices seem likely to move sideways in a $3.70-$3.95 trading range.
Similar to corn, cotton futures rallied based on reduced yield prospects and global stocks. The USDA now projects average U.S. cotton yield at 799 lb/ acre (down 34 lb from last month’s projection) and global stocks at 80.8 million bales (down 2.89 compared to last month). The key to cotton futures prices improving will be export sales pace. The USDA currently projects cotton exports at 16.5 million bales, the highest amount in the past 5-years. To see significant price improvements projected U.S. ending stocks will need to be closer to 5 million bales than the current estimate of 6.1 million bales.
The only major change for soybeans was a 15 million bushel reduction in U.S. crush. Market analysts were anticipating yield/acreage reductions due to harvest conditions, but they did not materialize. Soybean exports have picked up pace due to a softening of trade relations with China. Soybean futures prices will be tied to the U.S.-China trade deal progress and South American production projections. For now, nearby futures markets appear content to trade between $9.20 and $9.60.
Unfortunately, little has changed with wheat. U.S. production was reduced by 41 million bushels however, global stocks are projected at over 10.5 billion bushels. Until global stocks are projected to reduce wheat prices are unlikely to improve.
Corn
Ethanol production for the week ending November 1 was 1.014 million barrels per day, up 10,000 from the previous week. Ethanol stocks were 21.874 million barrels, up 0.775 million barrels compare to last week. Corn net sales reported by exporters for October 25-31 were down from last week with net sales of 19.2 million bushels for the 2019/20 marketing year. Exports for the same time period were down 36 percent from last week at 12.5 million bushels. Corn export sales and commitments were 25 percent of the USDA estimated total annual exports for the 2019/20 marketing year (September 1 to August 31) compared to the previous 5-year average of 39 percent. Nationally, the Crop Progress report estimated corn condition at 58 percent good-to-excellent and 13 percent poor-to-very poor; corn mature at 96 percent compared to 83 percent last week, 100 percent last year, and a 5-year average of 100 percent; and corn harvested at 52 percent compared to 41 percent last week, 74 percent last year, and a 5-year average of 75 percent. In Tennessee, the Crop Progress report estimated corn condition at 83 percent good-to-excellent and 3 percent poor-to-very poor; and corn harvested at 99 percent compared to 98 percent last week, 96 percent last year, and a 5-year average of 97 percent. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis, Northwest Barge Points, Upper-middle, and Northwest Tennessee. Overall, basis for the week ranged from 34 under to 24 over with an average of 6 over the December futures at elevators and barge points. December 2019 corn futures closed at $3.77, down 12 cents since last Friday. For the week, December 2019 corn futures traded between $3.72 and $3.87.
Dec/Mar and Dec/Dec future spreads were 9 and 24 cents. In Tennessee, January corn cash contracts averaged $4.03 with a range of $3.87 to $4.12. March 2020 corn futures closed at $3.86, down 12 cents since last Friday. December 2020 corn futures closed at $4.01, down 4 cents since last Friday. Downside price protection could be obtained by purchasing a $4.10 December 2020 Put Option costing 31 cents establishing a $3.79 futures floor.
Soybeans
Net sales reported by exporters were up compared to last week with net sales of 66.4 million bushels for the 2019/20 marketing year. Exports for the same period were down 10 percent compared to last week at 57.3 million bushels. Soybean export sales and commitments were 44 percent of the USDA estimated total annual exports for the 2019/20 marketing year (September 1 to August 31), compared to the previous 5-year average of 59 percent. Nationally, the Crop Progress report estimated soybeans harvested at 75 percent compared to 62 percent last week, 81 percent last year, and a 5-year average of 87 percent. In Tennessee, the Crop Progress report estimated soybeans harvested at 75 percent compared to 72 percent last week, 67 percent last year, and a 5-year average of 73 percent. Average soybean basis strengthened at Northwest Barge Points, Northwest, and Upper-middle Tennessee and weakened at Memphis. Basis ranged from 52 under to 15 over the January futures contract at elevators and barge points. Average basis at the end of the week was 9 under the January futures contract. January 2020 soybean futures closed at $9.31, down 5 cents since last Friday. For the week, January 2020 soybean futures traded between $9.26 and $9.42. January/December 2019 soybean-to-corn price ratio was 2.47 at the end of the week.
Jan/Mar and Jan/Nov future spreads were 13 and 36 cents. March 2020 soybean futures closed at $9.44, down 5 cents since last Friday. In Tennessee, January 2020 cash contracts ranged from $9.25 to $9.94. Nov/Dec 2020 soybean-to-corn price ratio was 2.41 at the end of the week. November 2020 soybean futures closed at $9.67, down 5 cents since last Friday. Downside price protection could be achieved by purchasing a $9.80 November 2020 Put Option which would cost 57 cents and set a $9.23 futures floor.
Cotton
Net sales reported by exporters were up compared to last week with net sales of 164,500 bales for the 2019/20 marketing year and 118,600 bales for the 2020/21 marketing year. Exports for the same time period were down 13 percent compared to last week at 129,700 bales. Upland cotton export sales were 62 percent of the USDA estimated total annual exports for the 2019/20 marketing year (August 1 to July 31), compared to the previous 5-year average of 55 percent. Nationally, the Crop Progress report estimated cotton harvested at 53 percent compared to 46 percent last week, 48 percent last year, and a 5-year average of 51 percent. In Tennessee, the Crop Progress report estimated cotton harvested at 67 percent compared to 60 percent last week, 77 percent last year, and a 5-year average of 68 percent. Delta upland cotton spot price quotes for November 6 were 63.19 cents/lb (41-4-34) and 65.44 cents/lb (31-3-35). Adjusted World Price (AWP) decreased 0.7 cents to 56.63 cents. December 2019 cotton futures closed at 64.72, up 0.49 cents since last Friday. For the week, December 2019 cotton futures traded between 63.45 and 65.06 cents.
Dec/Mar and Dec/Dec cotton futures spreads were 1.85 cents and 3.87 cents. March 2020 cotton futures closed at 66.57, up 0.93 cents since last Friday. December 2020 cotton futures closed at 68.59, up 1.07 cents since last Friday. Downside price protection could be obtained by purchasing a 69 cent December 2020 Put Option costing 4.64 cents establishing a 64.36 cent futures floor.
Wheat
Nationally, the Crop Progress report estimated winter wheat condition at 57 percent good-to-excellent and 13 percent poor-to-very poor; winter wheat planted at 89 percent compared to 85 percent last week, 83 percent last year, and a 5-year average of 88 percent; and winter wheat emerged at 71 percent compared to 63 percent last week, 69 percent last year, and a 5-year average of 74 percent. In Tennessee, winter wheat condition was estimated at 61 percent good-to-excellent and 9 percent poor-to-very poor; winter wheat planted was estimated at 58 percent compared to 50 percent last week, 61 percent last year, and a 5-year average of 66 percent; and winter wheat emerged at 36 percent compared to 21 percent last week, 42 percent last year, and a 5-year average of 40 percent. Wheat net sales reported by exporters were down compared to last week with net sales of 13.2 million bushels for the 2019/20 marketing year. Exports for the same time period were down 3 percent from last week at 15.0 million bushels. Wheat export sales were 58 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 65 percent. In Tennessee, November 2019 wheat cash contracts ranged from $5.15 to $5.62 for the week. December 2019 wheat futures closed at $5.10, down 6 cents since last Friday. December 2019 wheat futures traded between $5.05 and $5.20 this week. December wheat-to-corn price ratio was 1.35.
Dec/Mar and Dec/Jul future spreads were 4 and 14 cents. March 2020 wheat futures closed at $5.14, down 7 cents since last Friday. March wheat-to-corn price ratio was 1.33. In Memphis, June/July 2020 cash contracts ranged from $5.30 to $5.36. July 2020 wheat futures closed at $5.24, down 7 cents since last Friday. Downside price protection could be obtained by purchasing a $5.30 July 2020 Put Option costing 34 cents establishing a $4.96 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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