By Dr. Aaron Smith
Overview
Corn, soybeans, cotton, and wheat were up for the week. Corn and soybean prices continue to push higher on strong export demand. Additionally, wheat and corn prices increased this week on concerns over the conflict in Ukraine. Ukraine is one of the top three corn exporting countries in the world and as such any disruption in their supply chain will impact prices. This latest rally in corn provides producers a double edged sword. Harvest prices are moving towards $5.00/bu providing a very good opportunity for producers to price old crop and 2014 production. However, this latest price rally could result in an increase in corn acreage in some areas due to increased profitability, thus potentially providing lower prices this fall as a result of greater production. Pricing some additional corn at this point should be strongly considered as there is significant resistance for corn prices near $5.00 and much more downside price risk for harvest 2014. Wheat prices, like corn, have been influenced by concerns in Ukraine. Winter damage to the wheat crop has now been shifted to the back burner as some concerns have been mitigated. Nearby soybean prices continue to benefit from strong export demand and a lack of anticipated cancellations. Old crop/new crop soybean spreads continue to widen, an increase of 18 cents on Friday between the May and November contracts pushed the spread to $2.70/bu. Old crop cotton has broken above 90 cents on strong demand leading some to believe that the USDA will revise ending stocks downward on Monday’s WASDE report. 2014 cotton harvest prices are currently testing the 80 cent threshold. If December 2014 cotton futures reach the 80 cent level pricing some cotton is strongly encouraged. At this point in time futures prices have been unable to breach that level.
Corn
May 2014 corn futures closed at $4.89 up 26 cents from last week with support at $4.74 and resistance at $5.10. Across Tennessee basis (cash price- nearby future price) strengthened in Lower-middle Tennessee and weakened at Memphis, Northwest Barge Points, Northwest, and Upper-middle Tennessee. Overall basis for the week ranged from 11 under to 35 over the May futures contract. Corn net sales reported by exporters for the 2013/14 marketing year from February 21st to 27th were above expectations at 59.8 million bushels, primarily to Mexico, Japan, Columbia, South Korea, and Taiwan. Net sales reported by exporters for the 2014/15 marketing year were 6.5 million bushels, primarily to Japan. Exports for the same time period were 44.8 million bushels primarily to South Korea, Mexico, Japan, Egypt, and Peru. Corn export sales and commitments are 92% 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 72%. Ethanol production for the week ending February 28th was 894,000 barrels per day down 11,000 barrels per day. Ending ethanol stocks were 16.611 million barrels down 413,000 barrels. July 2014 corn futures were trading at $4.93/bu. May/July and May/Sep future spreads were 4 cents and -2 cents.
September 2014 corn futures closed at $4.87 up 19 cents from last week with support at $4.74 and resistance at $5.03. This week September and December 2014 corn futures prices traded between $4.68 and $4.97/bu. A great deal of uncertainty exists regarding the 2014 corn crop however more downside price risk exists at this time than upside price potential. Downside price protection could be obtained by purchasing a $4.90 September 2014 Put Option costing 39 cents establishing a $4.51 futures floor.
Soybeans
May 2014 soybean futures closed at $14.57 up 43 cents for the week with support at $14.26 and resistance at $14.75. Nearby soybean to corn price ratio was 2.98 at the end of the week. For the week, average soybean basis weakened at Northwest Barge Points, Upper-middle, and Northwest Tennessee and strengthened at Memphis and Lower-middle Tennessee. Basis ranged from 15 under to 55 over the May futures contract at elevators and barge points. Average basis at the end of the week was 17 over the May futures contract. Net sales reported by exporters for the 2013/14 marketing year from February 21st to 27th were above expectations at 28.4 million bushels, primarily to Mexico, Indonesia, Germany, and Spain. Net sales reported by exporters for the 2014/15 marketing year were 9.4 million bushels, primarily to China, Egypt, and Spain. Exports for the same period were 43.1 million bushels primarily to China, Indonesia, Mexico, Germany, and Spain. Soybean export sales and commitments are 107% 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 90%. July 2014 soybean futures were trading at $14.24. May/July and May/Nov future spreads were -33 cents and -270 cents.
November 2014 soybean futures closed at $11.87 up 18 cents for the week with support at $11.61 and resistance at $12.10. This week November 2014 soybean futures traded between $11.64 and $11.97/bu. Harvest soybean to corn price ratio was 2.44. Downside price protection could be achieved by purchasing a $12.00 November 2014 Put Option which would cost 76 cents and set an $11.24 futures floor.
Wheat
May 2014 wheat futures closed at $6.54 up 52 cents for the week with support at $6.35 and resistance at $6.72. Net sales reported by exporters for the 2013/14 marketing year from February 21st to 27th were above expectations at 20.4 million bushels, primarily to Mexico, Brazil, China, Taiwan, Chile, and Vietnam. Net sales reported by exporters for the 2014/15 marketing year were 1.6 million bushels primarily to the Philippines, Venezuela, Mexico, and Columbia. Exports for the same period were 23.2 million bushels primarily to Brazil, the Philippines, Egypt, Taiwan, and Mexico. Wheat export sales are 90% 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 92%. May wheat to corn price ratio was 1.34. In Tennessee, old crop wheat was trading between $6.53 and $6.70. May/July and May/September future spreads were 5 cents and 12 cents.
July 2014 wheat futures closed at $6.59 up 51 cents from last week with support at $6.39 and resistance at $6.75. July wheat futures traded between $6.16 and $6.66 this week. July/September wheat to corn price ratio was 1.35. In Tennessee, June/July cash forward contracts averaged $6.37/bu with a range of $5.96/bu to $6.58/bu at elevators and barge points. Downside price protection could be obtained by purchasing a $6.60 July 2014 Put Option costing 37 cents establishing a $6.23 futures floor.
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