Weekly Crop Comments, April 1, 2013

Cotton prices are up while corn, soybean, and wheat prices are down for the shortened trading week. Grain markets responded negatively March 28 to the bearish grain stocks reports led mainly by surprisingly bearish corn stocks. Follow through electronic trading April 1 indicates the bottom has not yet been found. Corn prices particularly are having trouble with the larger than expected stocks. USDA no doubt will factor in these stocks in their monthly supply & demand report on April 10. For the most part, the prospective plantings report was expected by the trade. NASS will start the Crop Progress reports back on April 1st with this first report giving us a glance at wheat conditions. The markets will quickly shift to planting weather as corn planting in the South has currently been slowed by excessive moisture. Although prices have taken a tumble, there may be opportunities arise from uncertainty in weather and how it will affect planting. A summary table of the March 28 USDA reports are at the end of these weekly comments.

Corn: Nearby:

Weekly exports were below expectations with net sales of 12.4 million bushels (net sales of 11.6 million bushels for the 2012/13 marketing year and 744,077 bushels of net sales for the 2013/14 year). Ethanol production dropped 4,000 barrels per day to 805,000 barrels per day in the latest .report. The March 28 Grain Stocks report surprised the corn market with a nearly 400 million bushels more in storage than the average trade guess. This is an indication that either the 2012 crop was under estimated or feed usage has been over estimated or some combination of both. Regardless of where the corn came from, this will most likely put ending stocks for the April 10th USDA report just shy of 1 billion bushels and not near as tight as had been thought. This recent drop in old crop prices could attract some buying interest which may eventually help support prices.

New Crop:

Prospective plantings at 97.282 million acres where right on the mark with the average trade guess. New crop prices have held up better than old crop. New crop focus will soon shift to planting weather and the progress planting makes. I would be at least of 20% priced. I would look for a price bounce to price more depending on how an individual producer’s planting goes. From a price risk management standpoint, a $5.60 September Put Option costing 43 cents which set a $5.17 futures floor.

Cotton: Nearby:

All cotton weekly export net sales were 254,800 bales (143,000 bales of Upland cotton net sales for 2012/13; net sales of 103,000 bales of Upland cotton for 2013/14; net sales of 12,600 bales of Pima cotton for 2012/13; and net reductions of 3,800 bales of Pima cotton for 2013/14). There were no USDA reports effecting old crop cotton, but some support of prices has been seen in data from China that factory output was the fastest in the last 11 months. This was viewed as a positive sign that China’s economy is recovering.

New Crop:

USDA in its Prospective Plantings report estimated all cotton acres at 10.03 million acres, a decline of 2.3 million acres from 2012. It is speculated that the recent rally in cotton prices since the USDA survey was made may have pulled in 200-500,000 more acres. However, current drought conditions in Texas would be indicative of an above average abandonment rate which may offset any acreage increases. This report should be considered neutral to bullish and at least for the time being should be supportive of new crop prices. Looming out there to derail cotton prices would be any changes in Chinese cotton policy. Implementing a floor price strategy would entail buying an 88 cent put option costing 6.37 cents and setting an 81.63 cent futures floor. Cotton equities on 2013 loan cotton are in the 29 cent range.

Soybeans: Nearby:

Weekly exports were below expectations with net sales of 24.8 million bushels (net sales of 2.5 million bushels for 2012/13 and net sales of 22.3 million bushels for 2013/14). Soybean stocks in storage were estimated by USDA to be 999 million bushels, 52 million bushels higher than the average trade guess. Although soybean stocks were negative, prices were also influenced by corn. With stocks appearing to be not quite as tight and a price decline, we could see some additional demand surface. Exports may be better than earlier USDA reports projected, but may depend on whether more delays in shipping soybeans from South America.

New Crop:

USDA’s Prospective Plantings report was friendly to new crop soybeans although prices closed lower for the day. USDA estimated 77.1 million acres for 2013, 1.4 million acres less than the average trade guess. This would be 72,000 acres less than planted in 2012. Although higher price levels may now be harder to achieve, there still could be additional pricing opportunities depending on weather and how demand for the new crop year develops. I would have up to 10% priced on 2013 production. I think there may be an opportunity for additional pricing at higher levels or an opportunity to put in place an option strategy. Currently, a $12.60 Put Option would cost 78 cents and set an $11.82 futures floor.

Wheat: Nearby:

Weekly exports were above expectations at net sales of 30.4 million bushels (21.3 million bushels for 2012/13 and net sales of 9.1 million bushels for 2013/14). It may sound like a broken record, but the wheat market was also disappointed in the March 28 Grain Stocks report. Wheat stocks were estimated at 1.23 billion bushels as of March 1st, 67 million bushels greater than the average trade guess. There was some expectation that more wheat going into feed would reduce the stocks number.

New Crop:

USDA estimated all wheat acres for 2013 at 56.4 million acres, 700,000 acres more than 2012 but right on the average trades guess. Wheat price focus will now shift to the weekly Crop Progress starting April 1. This will be a good indication of the condition of the winter wheat crop, particularly in the drought areas. Some focus will be on planting conditions of the spring wheat crop. I am currently priced 10% on the 2013 crop. A $6.75 Put Option would cost 33 cents and set a $6.42 futures floor.

The tables below summarize the March 28, 2013 USDA Prospective Plantings report in the U.S. and Tennessee and the Quarterly Grain Stocks report.