Weekly Crop Comments : Cotton And Wheat Were Up

By Dr. Aaron Smith

Overview

Cotton and wheat were up; soybeans were down; and corn was mixed for the week. Estimates for domestic planting have become more prevalent as we approach the planting season. A couple of themes have emerged: 1) most analysts are anticipating record soybean acreage (the current record is 77.451 million acres planted in 2009); 2) Corn acreage is projected down from last year however will still be  top 5 in terms of planted acreage in the last 50 years; and 3) corn and soybean yields are projected up. Planting conditions will play a very important role as to how many acres of each commodity will be planted particularly in several northwest Corn Belt states. Trend line yield estimates vary dramatically based on the functional form of the trend line and the length of time / number of observations used in the projection. Most trend line yields for corn are between 160 and 166 bushels per acre for 2014. For soybeans trend line yields are 42 to 47 bushels per acre. Nearby cotton futures continue to remain above 90 cents while harvest prices have yet to breach the 80 cent level. Wheat and corn futures continue to receive some support from uncertainty surrounding the Russian / Ukrainian situation.  

Corn

May 2014 corn futures closed at $4.86 down 3 cents from last week with support at $4.75 and resistance at $4.97. Across Tennessee basis (cash price- nearby future price) strengthened in Upper-middle and Northwest Tennessee, weakened at Memphis and Northwest Barge Points, and remained unchanged in Lower-middle Tennessee. Overall basis for the week ranged from 6 under to 36 over the May futures contract. Corn net sales reported by exporters for the 2013/14 marketing year from February 28th to March 6th were within expectations at 26.9 million bushels, primarily to Japan, South Korea, Taiwan, Colombia, and Mexico. Net sales reported by exporters for the 2014/15 marketing year were within expectations at 4.1 million bushels, primarily to Mexico. Exports for the same time period were 35.7 million bushels primarily to Japan, Taiwan, Mexico, Saudi Arabia, and Peru. Corn export sales and commitments are 93% of the USDA estimated total annual exports for the 2013/14 marketing year (September 1 to August 31) compared to a 5-year average of 74%. Ethanol production for the week ending March 7th was 869,000 barrels per day down 25,000 barrels per day. Ending ethanol stocks were 15.908 million barrels down 703,000 barrels. July 2014 corn futures were trading at $4.90/bu. May/July and May/Sep future spreads were 4 cents and 2 cents.

September 2014 corn futures closed at $4.88 up 1 cent from last week with support at $4.77 and resistance at $4.96. This week September and December 2014 corn futures prices traded between $4.74 and $4.92/bu. Current harvest 2014 futures prices are above most breakeven prices. The potential size of the 2014 corn crop creates substantial downside price risk, as such producers should consider pricing additional production at this time. Downside price protection could be obtained by purchasing a $4.90 September 2014 Put Option costing 38 cents establishing a $4.52 futures floor.

Soybeans

May 2014 soybean futures closed at $13.88 down 69 cents for the week with support at $13.64 and resistance at $14.28. Nearby soybean to corn price ratio was 2.86 at the end of the week. For the week, average soybean basis weakened at Memphis, Northwest Barge Points, Upper-middle, and Lower-middle Tennessee and strengthened in Northwest Tennessee. Basis ranged from 17 under to 55 over the May futures contract at elevators and barge points. Average basis at the end of the week was 13 over the May futures contract. Net sales reported by exporters for the 2013/14 marketing year from February 28th to March 6th were below expectations at 4.2 million bushels, primarily to Mexico, Japan, Taiwan, Colombia, and Indonesia. Net sales reported by exporters for the 2014/15 marketing year were above expectations at 28.5 million bushels, primarily to China and Mexico. Exports for the same period were 31.7 million bushels primarily to China, Mexico, Japan, Taiwan, and Egypt. Soybean export sales and commitments are 106% of the USDA estimated total annual exports for the 2013/14 marketing year (September 1 to August 31), compared to a 5-year average of 91%. July 2014 soybean futures were trading at $13.71. May/July and May/Nov future spreads were -17 cents and -214 cents.

November 2014 soybean futures closed at $11.74 down 13 cents for the week with support at $11.65 and resistance at $11.93. This week November 2014 soybean futures traded between $11.67 and $11.94/bu. Harvest soybean to corn price ratio was 2.41. Harvest soybean futures took a step back this week after peaking just shy of 12.00/bu last week. Downside price protection could be achieved by purchasing an $11.80 November 2014 Put Option which would cost 68 cents and set an $11.12 futures floor.

Wheat

May 2014 wheat futures closed at $6.87 up 33 cents for the week with support at $6.54 and resistance at $7.05. Net sales reported by exporters for the 2013/14 marketing year from February 28th to March 6th were within expectations at 17.5 million bushels, primarily to Nigeria, Taiwan, Indonesia, Thailand, Mexico, Japan, and Vietnam. Net sales reported by exporters for the 2014/15 marketing year were within expectations 3.3 million bushels primarily to the Philippines, Mexico, Columbia, and China. Exports for the same period were 16.7 million bushels primarily to Mexico, Indonesia, Japan, the Philippines, and Israel. Wheat export sales are 91% of the USDA estimated total annual exports for the 2013/14 marketing year (June 1 to May 31), compared to a 5-year average of 94%. May wheat to corn price ratio was 1.41. In Tennessee, old crop wheat was trading between $6.90 and $6.99. May/July and May/September future spreads were 3 cents and 11 cents.

July 2014 wheat futures closed at $6.90 up 31 cents from last week with support at $6.65 and resistance at $7.07. July wheat futures traded between $6.42 and $7.00 this week. July/September wheat to corn price ratio was 1.41. The latest rally in wheat markets presents an excellent opportunity to increase harvest pricing. As we emerge from winter evaluate the quality of wheat crop and increase pricing levels accordingly. In Tennessee, June/July cash forward contracts averaged $6.56/bu with a range of $5.96/bu to $6.92/bu at elevators and barge points. Downside price protection could be obtained by purchasing a $7.00 July 2014 Put Option costing 52 cents establishing a $6.48 futures floor.