Corn prices are up with cotton, soybean and wheat prices down for the week. The June U.S. Dollar Index was trading mid day at 74.80, up 1.05 for the week. The Dow Jones Industrial Average traded mid day at 11,991; down 166 points for the week. Crude Oil was trading mid day at 99.37 a barrel, down 1.20 a barrel for the week. USDA released their monthly Supply & Demand report on June 9 and comments on that report have been posted at http://economics.ag.utk.edu/outlook.html. There were a few surprises in USDA’s report as corn acreage was adjusted now rather than after the June 30 Acreage report. This brings the question whether acreage will be adjusted further after the actual survey is completed. Cotton harvested acres were changed reflecting the drought condition in the Southwest. The drought in Texas ranks as their third worst on record. It is looking like an uncertain situation as the market sorts out acreage, yield potential, and how prices will affect demand. In the short term, I look for crop condition ratings to guide the direction of the market.
Corn:
Nearby: July futures closed today at $7.87 a bushel, up $0.33 for the week. Support is at $7.65 with resistance at $8.10 a bushel. Technical indicators have a strong buy bias. Weekly exports were below expectations at 13.8 million bushels (12.6 million bushels for 2010/11 and 1.2 million bushels for 2011/12). Early in the week a sale to Mexico was announced covering the 2011/12 and 2012/13 marketing years and was one of the ten largest single day sales in USDA records going back to 1977. This is a bullish signal that buyers expect corn prices to remain high for some time. USDA in this month’s report left ending stocks from May at 730 million bushels for the 2010/11 marketing year, compared to the average trade guess of 715 million bushels. World ending stocks for 2010/11 decreased 187 million bushels to 4.624 billion bushels mainly on higher China corn consumption offsetting higher production.
Current Crop: September closed at $7.56 a bushel, up $0.25 bushel for the week. Support is at $7.39 with resistance at $7.69 a bushel. Technical indicators have a strong buy bias. As of June 5, 94% of the corn crop was planted compared to 86% last week, 99% last year and the 5 year average of 98%. Most market analysts were expecting 91%-93% of the crop being planted. Nationwide, corn emergence is 79% compared to 66% last week, 93% last year and the five year average of 90%. Corn crop condition ratings as of June 5 were 67% good to excellent compared to 63% last week, and 76% last year. Poor to very poor ratings are 6% compared to 6% last week, and 5% a year ago. In somewhat of a surprise, USDA for 2011/12 went ahead and lowered planted acres 1.5 million acres to 90.7 million acres rather than wait for the June 30 Acreage Report. Projected harvested acreage was also lowered 1.9 million acres to 83.2 million acres reflecting lower planted and most likely a loss of acreage in the Missouri River basin. Yields were left at the May level of 158.7 bushels/acre making production 13.2 billion bushels, a drop of 305 million bushels. The only adjustment on the demand side was feed use and it was dropped 100 million bushels. Ending stocks for 2011/12 are projected at 695 million bushels, a drop of 205 million bushels from May. The average trade guess was 800 million bushels. Global corn stocks are estimated to decrease 13.4% or 679 million bushels from the May report to 4.405 billion bushels on lower beginning stocks and increased consumption in China. China’s ending stocks were reduced 472 million bushels reflecting their struggles on production to keep pace with rising usage. I am currently 50% priced and would hold at this level until we get further along in the growing season. Put options would set a floor and buying a December $7.10 Put option would cost $0.72 and set a $6.38 floor on the December market while keeping an upside.
Cotton:
Nearby: July futures contract closed at 150.03 cents/lb., down 11.60 cents/lb. for the week. Support is at 145.08 cents per pound, with resistance at 156.88 cents per pound. Technical indicators have changed to a strong sell bias. All cotton weekly export sales were below expectations at an overall reduction of 118,100 bales (a reduction of 143,200 bales of upland cotton for 10/11; sales of 24,500 bales of upland cotton for 11/12 and sales of 600 bales of Pima cotton for 2010/11). The Adjusted World Price for June 10 – June 16 is 145.57 cents/lb.; down .88 cents/lb. USDA projected ending old crop stocks at 2.25 million bales, an increase of 500,000 bales from May based on a reduction in exports. World ending stocks were raised 720,000 bales to 43.24 million bales for the current marketing year.
Current Crop: December closed at 133.65 cents per pound, down 5.05 cents for the week. Support is at 129.50 cents per pound, with resistance at 136.24 cents per pound. Technical indicators have a strong buy bias. Current quotes on 2011 loan equities range from 67.50 to 70 cents per pound. Keep in contact with your cotton buyer for current quotes on loan equities and pricing alternatives. As of June 5, 87% of the cotton crop was planted compared to 73% last week, 90% last year and the 5 year average of 87%. Nationwide, 9% of the cotton crop is squaring compared to 7% last year and the five year average of 8%. The 2011/12 marketing year reflects offsetting revisions which leave ending stocks at 2.5 million bales and a slightly higher stock to use ratio of 14.9%. Beginning stocks were raised 500,000 bales reflecting the 2010/11 numbers and production was lowered 1 million bales to 17 million bales on mainly expected higher abandonment from the Southwest drought. Exports were reduced 500,000 bales. Global ending stocks are expected to increase 320,000 bales to 48.25 million bales. China’s stocks to use ratio like the U.S., if realized would be the second smallest in 22 years. Although this was a somewhat neutral report, the market is realizing that production problems exist and production could be reduced further. I am currently at 45% priced and would hold at that level. Evaluate the option market as a good tool to set a floor price and still leave an upside. A December 134 Put option would cost 16.42 cents and set a 117.58 futures floor. An out of the money December 110 Put would cost 5.85 cents and set a 104.15 futures floor. December 2012 prices closed at 106.04 cents/lb. Loan equities for 2012 production have been quoted at 46 cents subject to confirmation.
Soybeans:
Nearby: The July contract closed at $13.87 ¼ a bushel, down $0.27 for the week. Support is at $13.67 with resistance at $14.07 a bushel. Technical indicators have changed to a buy bias. Weekly exports were below expectations at 4.4 million bushels for 2010/11. USDA raised ending soybean stocks 10 million bushels from last month to 180 million bushels for the current marketing year. The trade was expecting a number of 173 million bushels. The only adjustment was made in lowering exports 10 million bushels. Global ending stocks for 2010/11 were raised 26 million bushels at 2.371 billion bushels.
Current Crop: November soybeans closed at $13.81 ¾ a bushel, down $0.15 a bushel this week. Support is at $13.61 with resistance at $14.00 a bushel. Technical indicators have a strong buy bias. As of June 5, 68% of the soybean crop was planted compared to 51% last week, 83% last year and the 5 year average of 82%. Market analysts were expecting 70% of the crop to have been planted. Nationwide, soybean emergence is 44% compared to 27% last week, 63% last year and the five year average of 61%. Ending stocks for 2011/12 are increased 30 million bushels from last month to 190 million bushels compared to the average trade guess of 165 million bushels. Beginning stocks were increased 10 million bushels and exports were reduced 20 million bushels on reflecting increased competition from South America. World ending stocks for 2011/12 are projected to drop 10 million bushels from the May estimate to 2.263 billion bushels. November soybean prices are having trouble getting past the $14 bushel mark. Corn prices look to be giving some support to soybeans as prices although down have held up well considering the bearish USDA report. The market could also be concerned about acreage and yield potential of a later than normal crop. I am currently priced 50% for 2011 and would hold off pricing more. Currently, buying a November $13.80 Put option would cost $0.84 a bushel and set a $12.96 futures floor.
Wheat:
Current Crop: July futures contract closed at $7.59 ¼ a bushel, down $0.15 a bushel this week. Support is at $7.27 with resistance at $7.79 a bushel. Technical indicators have changed to a strong sell bias. Weekly exports were above expectations at 17.6 million bushels for 2011/12 which is now the current marketing year for wheat. There were 66.7 million bushels carried over from 2010/11 leaving accumulated exports for the 2010/11 year at 1.229 billion bushels. Nationwide, 10% of the winter wheat crop has been harvested compared to 4% last year and the five year average of 6%. Winter wheat crop condition ratings as of June 5 were 34% good to excellent compared to 33% last week and 66% last year. Poor to very poor ratings are 44% compared to 44% last week and 9% a year ago. USDA dropped ending stocks 30 million bushels for 2010/11 to 809 million bushels as imports were lowered 10 million bushels and exports were increased 20 million bushels. Global wheat supplies were raised 180 million bushels to 6.875 billion bushels on increased stocks in Russia as feeding is reduced for the last 2 marketing years. For the 2011/12 year, ending stocks were lowered 15 million bushels to 687 million bushels as the 30 million bushel reduction in beginning stocks offset the 15 million bushel increase in production. The market was a little surprised by the increase in production and was looking for a cut. I am currently at 50% priced and would look to sell the remainder either off the combine at harvest or hold in storage, if available. Currently, there is carry in the futures market favoring storage to September or December, although today’s market gave up 26 cents of that advantage in futures. The basis (difference in cash and future prices) is rather wide for August delivery negating some of the carry. Producers with storage who want to set a floor under their wheat price may want to look at September or December Put options. A December $8.30 Put would cost $0.79 a bushel and set a $7.51 futures floor.
Deferred: December wheat closed at $8.25 ¾ a bushel Friday, down $0.45 since last week. Support is at $8.02 with resistance at $8.51 a bushel. Technical indicators have changed to a strong sell bias. Spring wheat as of June 5 is 79% planted compared to 68% last week, 97% a year ago and the five year average of 98%. Spring wheat emergence is 57% compared to 40% last week, 89% last year and the five year average of 92%. July 2012 wheat closed at $8.79 ¾ a bushel. Producers who plan on having wheat to harvest in 2012 may want to start looking at pricing for 2012 production.
