Nationally, The Crop Progress Report Estimated Soybean Condition At 56 Percent Good-To-Excellent
DR. AARON SMITH
KNOXVILLE, TENNESSEE
Should producers start managing price risk for the 2023 crop? Yes. On September 16, December 2023 corn futures were $6.20/bu and November 2023 soybean futures were $13.66/bu. Some producers will be looking to hedge new crop production (and this would be a prudent risk management decision for many), however given volatility and the potential for increased margin requirements a more cost-effective strategy may be bridging the price risk gap until crop insurance prices are determined in March. One strategy to bridge the price risk gap is to utilize put options.
For example, a $5.20 December 2023 corn put option could be purchased for 20 cents setting a $5.00 futures price floor. Every producer will have different risk tolerances, so they will need to select the strike price and corresponding premium cost that will work for their risk management plan. Higher strike prices are more expensive but provide greater price protection and lower strike prices are cheaper but provide lower price protection.
The benefit of purchasing a December or November 2023 put option is that it can be used to extend time before fixing a price or making additional risk management decisions, thus bridging the price risk gap. If on March 1 projected crop insurance prices for corn and soybeans are higher than the put option strike price, the purchaser can exit the option position and recoup part of the premium. If crop insurance prices are lower than the put option strike price the purchaser can maintain the position. This strategy allows price risk protection between now and when crop insurance prices (and revenue guarantees) are set. The uncertainty and volatility in futures markets necessitates identifying risk intervals and seeking mitigation strategies.
The projected crop insurance price for winter wheat, in Tennessee, was set at $8.40/bushel. Input prices remain high; however, the current crop insurance price provides good revenue protection for those planting wheat this fall. For example, a 75 bu/acre Actual Production History (APH) at 75 percent coverage buyup sets a crop insurance revenue guarantee of $472.50/acre. High crop insurance, and market, prices should provide an incentive for increased acreage in Tennessee and the US. Working with a qualified crop insurance agent will assist farmers with maximizing crop insurance protection and selecting the appropriate policy options based on premium costs.
Corn
Ethanol production for the week ending September 9 was 0.963 million barrels per day, down 26,000 from the previous week. Ethanol stocks were 22.843 million barrels, down 295,000 compared to last week. Corn net sales reported by exporters for Au-gust 26-September 1, 2022, were 32.1 million bushels for the 2022/23 marketing year. Exports for the same period were 41.4 million bushels. Nationally, the Crop Progress report estimated corn condition at 53 percent good-to-excellent and 20 percent poor-to-very-poor; corn dough at 95 percent compared to 92 percent last week, 95 percent last year, and a 5-year average of 96 percent; corn dented at 77 percent compared to 63 percent last week, 85 percent last year, and a 5-year average of 79 percent; corn mature at 25 percent compared to 15 percent last week, 35 percent last year, and a 5-year average of 30 percent; and corn harvested at 5 percent compared to 3 percent last week and a 5-year average of 4 percent. In Tennessee, corn condition was estimated at 28 percent good-to- excellent and 40 percent poor-to-very poor; corn dented at 94 percent compared to 87 percent last week, 94 percent last year; and a 5-year average of 95 percent; corn mature at 58 percent compared to 42 percent last week, 57 percent last year, and a 5-year average of 68 percent; and corn harvested at 14 percent compared to 9 percent last week, 14 percent last year, and a 5-year average of 21 percent. Across Tennessee, average corn basis (cash price-nearby futures price) weakened or remained unchanged at West, Northwest, West-Central, North- Central, and Mississippi River elevators and barge points. Overall, basis for the week ranged from 15 to 37 over, with an average of 23 over the December futures at elevators and barge points. New crop cash prices ranged from $6.57 to $7.11 at elevators and barge points.
December 2022 corn futures closed at $6.77, down 8 cents since last Friday. For the week, December 2022 corn futures traded between $6.67 and $6.99. Downside price protection could be obtained by purchasing a $6.80 December 2022 Put Option costing 33 cents establishing a $6.47 futures floor. Dec/Mar and Dec/Dec future spreads were 6 and -57 cents. March 2023 corn futures closed at $6.83, down 6 cents since last Friday. December 2023 corn futures closed at $6.20, down 6 cents since last Friday.
Soybeans
Across Tennessee, average soybean basis weakened or remained unchanged at West, Northwest, West-Central, North-Central, and Mississippi River elevators and barge points. Basis ranged from 44 to 65 over, with an average basis of 48 over the Novem-ber futures contract. Soybean net sales reported by exporters for August 26-September 1, 2022, were 53.9 million bushels for the 2022/23 marketing year. Exports for the same period were 17.3 million bushels. Nationally, the Crop Progress report estimated soybean condition at 56 percent good-to-excellent and 15 percent poor-to-very poor; soybeans setting pods at 97 percent compared to 94 percent last week, 96 percent last year, and a 5-year average of 98 percent; and soybeans dropping leaves at 22 percent compared to 10 percent last week, 35 percent last year, and a 5-year average of 28 percent. In Tennessee, soybean condition was estimated at 54 percent good-to-excellent and 16 percent poor-to-very poor; soybean setting pods at 98 percent compared to 95 percent last week, 99 percent last year, and a 5-year average of 98 percent; soybeans dropping leaves at 30 percent compared to 15 percent last week, 25 percent last year, and a 5-year average of 26 percent; and soybeans harvested at 2 percent compared to 0 percent last week, 1 percent last year, and a 5-year average of 2 percent. Nov/Dec 2022 soybean-to-corn price ratio was 2.14 at the end of the week. New crop cash soybean prices at elevators and barge points ranged from $14.28 to $15.22.
November 2022 soybean futures closed at $14.48, up 36 cents since last Friday. For the week, November 2022 soybean futures traded between $14.02 and $15.08. Downside price protection could be achieved by purchasing a $14.50 November 2022 Put Option which would cost 43 cents and set a $14.07 futures floor. Nov/Jan and Nov/Nov future spreads were 7 and -82 cents.
January 2023 soybean futures closed at $14.55, up 38 cents since last Friday. November 2023 soybean futures closed at $13.66, up 6 cents since last Friday. November/December 2023 soybean-to-corn price ratio was 2.2 at the end of the week.
Cotton
Delta upland cotton spot price quotes for September 15 were 108.24 cents/lb (41-4-34) and 110.49 cents/lb (31-3-35). Adjusted world price (AWP) was up 0.25 cents at 95.17 cents. Cotton net sales reported by exporters for August 26-September 1, 2022, were 230,700 bales for the 2022/23 marketing year and 101,000 bales for the 2023/24 marketing year. Exports for the same period were 235,400 bales. Nationally, the Crop Progress report estimated cotton condition at 33 percent good-to- excellent and 37 percent poor-to-very poor; cotton bolls opening at 49 percent compared to 39 percent last week, 35 percent last year, and a 5-year average of 41 percent; and cotton harvested at 8 percent compared to 4 percent last year and a 5-year average of 8 percent. In Tennessee, cotton condition was estimated at 50 percent good-to- excellent and 24 percent poor-to-very poor; and cotton bolls opening at 30 percent compared to 26 percent last week, 10 percent last year, and a 5-year average of 35 percent. December 2022 cotton futures closed at 99.29 cents, down 5.55 cents since last Friday. For the week, December 2022 cotton futures traded between 99.29 and 108.1 cents. Dec/Mar and Dec/Dec cotton futures spreads were -3.14 cents and -18.37 cents. Downside price protection could be obtained by purchasing a 100 cent December 2022 Put Option costing 7.35 cents establishing a 92.65 cent futures floor.
March 2023 cotton futures closed at 96.15 cents, down 5.3 cents since last Friday. December 2023 cotton futures closed at 80.92 cents, down 2.05 cents since last Friday.
Wheat
Wheat net sales reported by exporters for August 26-September 1, 2022, were 7.1 million bushels for the 2022/23 marketing year. Exports for the same period were 20.1 million bushels. Wheat cash prices at elevators and barge points ranged from $7.91 to $8.62. December 2022 wheat futures closed at $8.59, down 10 cents since last Friday. December 2022 wheat futures traded between $8.30 and $8.84 this week. December wheat-to-corn price ratio was 1.27. March 2023 wheat futures closed at $8.74, down 10 cents since last Friday. Dec/Mar and Dec/Jul future spreads were 15 and 16 cents.
Nationally, the Crop Progress report estimated winter wheat planted at 10 percent compared to 3 percent last week, 11 percent last year, and a 5-year average of 7 percent. In Tennessee, winter wheat planted was estimated at 2 percent compared to 1 percent last week and 4 percent last year. New crop wheat cash prices at elevators and barge points ranged from $7.97 to $8.65. July 2023 wheat futures closed at $8.75, down 9 cents since last Friday. Downside price protection could be obtained by purchasing an $8.80 July 2023 Put Option costing 103 cents establishing a $7.77 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee