5/2/2014 at 4:11 p.m.
By Brandy Carroll, Matt King & Bruce Tencleve
WEATHER, WEATHER, WEATHER
Commodity markets have been supported by cooler and wetter-than-normal conditions for the last few weeks. The U.S. Department of Agriculture progress report released this last week showed plantings continue to lag behind the five-year average.
• Corn - only 19 percent planted compared to 28 percent
• Rice - only 45 percent planted compared to 56 percent
• Cotton - only 13 percent planted compared to 18 percent
While it is still early and plantings will catch up, the market continues to worry about the effect later planting could have on the crop. While this will likely dominate the news for the next few weeks, remember last year. Everyone thought the corn crop would suffer as a result of its late planting, and many were expecting a 150-bushel-per-acre yield. However, at the end of the year, farmers were able to harvest a 158.5-bushel crop. If improving weather forecasts hold, prices are likely to soften over the next couple of weeks as we will see plantings catch up with where they should be.
USDA PREPARES 2014-15
In the May Supply and Demand Report, the USDA will give the market it’s first official look at next year’s crops. This report will be based on the perspective planting report and will utilize trend yields for each of the commodities. These trend yields are based on historical yields. In the baseline projections released back in February, the USDA used the following trend yields: corn, 165.6 bushels; soybeans, 45.2 bushels; cotton, 795 lbs.; and rice, 7,648 lbs.
While these are not the exact numbers they will use for the May report, they will likely be pretty close. This means we could again see the USDA forecast record soybeans supplies, near record corn supplies, and large rice and cotton supplies. If these supplies are realized, demand — particularly export demand — will need to strengthen to prevent stocks from becoming burdensome.
COTTON PRICES CONTINUE TO RALLY
December cotton prices, as well as nearby cotton prices, continue to strengthen. Continued strong U.S. exports this year combined with the continued drought across major growing areas in Texas are supporting prices. December cotton has climbed to more than 83 cents in recent days.
While the market is focused on U.S. supplies and worried about the abandonment rate in Texas, eventually the focus will have to turn back to the demand side. Because, as the USDA report will likely show in a couple of weeks, the United States is still building cotton stocks despite the increase in abandonment in Texas.
Additionally, there remains a cloud of uncertainty around how much cotton China will allow their mills to import. Under WTO rules, China only has to allow 4 .1 million bales of cotton in at a low 1-percent tariff each year. Historically, China has expanded their quota and allowed more cotton to come in at a reduced rate. Cotton that is brought in outside the tariff is subject to a 40-percent tariff. With current price supports in China, some spinners have chosen to pay the additional tariff as imported cotton is still cheaper than domestic cotton. In addition to imports, watch as China adjusts their domestic program. Adjustments they make to their domestic prices have a significant impact on the a-index and futures prices in the U.S.
PEANUT PRODUCTION CONTINUES IN ARKANSAS
Peanut acres in Arkansas remain near 20,000 as the crop remains a viable option for many producers in northeast Arkansas. With two buying points now in the state, we could see acreage grow even more over the next few years. While producers in Arkansas do not have the protection of peanut base, which would allow them to better participate in the program, the new Farm Bill will allow a producers generic base (former cotton base) to be peanut base when peanuts are planted on the farm.
Producers may want to consider peanuts in the future as they have proven to be a profitable crop for many growers in the state and are one of the few crops that still have a viable safety net program.