With The U.S. Production Season Winding Down, Emphasis Will Now Shift To South America
DR. AARON SMITH
KNOXVILLE, TENNESSEE
December corn prices softened this week as harvest moved North. The December contract appreciated 138 cents since the end of July, moving from $5.61 to $6.99, on September 21. However, prices may enter a harvest lull, that could test a key level of support at $6.30. Given the weather variability during the 2022 growing season, a high degree of yield/production variability should be expected as harvest progresses. This variability could lead to revisions in expected yield by the USDA that may provide price surprises this fall. The current national yield estimated by USDA is 172.5 bu/acre – down 2.9 bu/acre compared to last year.
Since June 9, the November soybean contract’s daily increase or decrease has exceeded 10 cents 68 percent of the time (50 out of 74 trading days). 26 percent of trading days have exceed 30 cent increases or decreases. This is tremendous price volatility within a wide trading range of $12.88 ½ to $15.84. With the U.S. production season winding down, emphasis will now shift to South America, however this shift will likely not reduce the volatility in soybean prices.
December cotton futures have been on a roller coaster ride this growing season. On April 1 the December cotton contract closed at 110.68 cents, then reached a high of 133.79 cents on May 17, before falling to a low of 82.54 cents on July 7, re-bounded to 119.59 cents on August 16, and subsequently fell to 92.38 cents on September 21. A 23.11 cent increase, followed by a 51.25 cent decline, followed by a 37.05 cent increase, followed by a 27.21 cent decline. Incredible price movements during the growing season. There are numerous reasons for the dramatic price swings, however two dominant forces are the high abandonment (reduced production in the U.S.) and demand uncertainty due to current global economic conditions. To highlight the influence of macro-economic factors on cotton prices you can look at the 0.793 correlation between the nearby S&P 500 futures contract and the December cotton contract from March 12 to September 23. A correlation coefficient of 0.793 indicates a strong positive correlation between the S&P 500 and the price of cotton. This strong correlation is likely to persist due to global economic uncertainty.
Corn
Ethanol production for the week ending September 16 was 0.901 million barrels per day, down 62,000 from the previous week. Ethanol stocks were 22.501 million barrels, down 342,000 compared to last week. Corn net sales reported by exporters for September 8-15 were 7.2 million bushels for the 2022/23 marketing year. Exports for the same period were 22.2 million bushels. Corn export sales and commitments were 22 percent of the USDA estimated total exports for the 2021/22 marketing year (September 1 to August 31) compared to the previous 5-year average of 30 percent. Nationally, the Crop Progress report estimated corn condition at 52 percent good-to-excellent and 21 percent poor-to- very-poor; corn dented at 87 percent compared to 77 percent last week, 92 percent last year, and a 5-year average of 88 percent; corn mature at 40 percent compared to 25 percent last week, 54 percent last year, and a 5-year average of 45 percent; and corn harvested at 7 percent compared to 5 percent last week, 9 percent last year, and a 5-year average of 8 percent. In Tennessee, corn condition was estimated at 28 percent good-to-excellent and 40 percent poor-to-very poor; corn dented at 98 percent compared to 94 percent last week, 98 percent last year; and a 5-year average of 98 percent; corn mature at 77 percent compared to 58 percent last week, 76 percent last year, and a 5-year average of 83 percent; and corn harvested at 27 percent compared to 14 percent last week, 29 percent last year, and a 5-year average of 38 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 even to 34 over, with an average of 12 over the December futures at elevators and barge points. New crop cash prices ranged from $6.58 to $7.07 at elevators and barge points. December 2022 corn futures closed at $6.76, down 1 cent since last Friday. For the week, December 2022 corn futures traded between $6.68 and $6.98. Downside price protection could be obtained by purchasing a $6.80 December 2022 Put Option costing 32 cents establishing a $6.48 futures floor. Dec/Mar and Dec/Dec future spreads were 5 and -60 cents.
March 2023 corn futures closed at $6.83, down 2 cents since last Friday. December 2023 corn futures closed at $6.16, down 4 cents since last Friday.
Soybeans
Across Tennessee, average soybean basis strengthened or remained unchanged at West, Northwest, West-Central, North-Central, and Mississippi River elevators and barge points. Basis ranged from 24 to 67 over, with an average basis of 56 over the November futures contract. Soybean net sales reported by exporters were 16.4 million bushels for the 2022/23 marketing year. Exports for the same period were 19.2 million bushels. Soybean export sales and commitments were 45 percent of the USDA estimated total annual exports for the 2021/22 marketing year (September 1 to August 31), compared to the previous 5- year average of 40 percent. Nationally, the Crop Progress report estimated soybean condition at 55 percent good-to-excellent and 15 percent poor-to-very poor; soybeans dropping leaves at 42 percent compared to 22 percent last week, 55 percent last year, and a 5-year average of 47 percent; and soybeans harvested at 3 percent compared to 5 percent last year and a 5-year average of 5 percent. In Tennessee, soybean condition was estimated at 54 percent good-to-excellent and 12 percent poor-to-very poor; soybeans dropping leaves at 44 percent compared to 30 percent last week, 35 percent last year, and a 5-year average of 40 percent; and soybeans harvested at 6 percent compared to 2 percent last week, 4 percent last year, and a 5-year average of 7 percent. Nov/Dec 2022 soybean-to-corn price ratio was 2.11 at the end of the week. New crop cash soybean prices at elevators and barge points ranged from $14.33 to $15.06. November 2022 soybean futures closed at $14.25, down 23 cents since last Friday. For the week, November 2022 soybean futures traded between $14.20 and $14.88. Downside price protection could be achieved by purchasing a $14.30 November 2022 Put Option which would cost 40 cents and set a $13.90 futures floor. Nov/Jan and Nov/Nov future spreads were 6 and -64 cents.
January 2023 soybean futures closed at $14.31, down 24 cents since last Friday. November 2023 soybean futures closed at $13.61, down 5 cents since last Friday. Nov/Dec 2023 soybean-to-corn price ratio was 2.21 at the end of the week.
Cotton
Delta upland cotton spot price quotes for September 22 were 99.54 cents/lb (41-4-34) and 101.79 cents/lb (31-3-35). Adjusted world price (AWP) was down 6.29 cents at 88.88 cents. Cotton net sales reported by exporters were 32,400 bales for the 2022/23 marketing year and 13,300 bales for the 2023/24 marketing year. Exports for the same period were 232,000 bales. Upland cotton export sales were 68 percent of the USDA estimated total annual exports for the 2021/22 marketing year (August 1 to July 31), compared to the previous 5-year average of 55 percent.
Nationally, the Crop Progress report estimated cotton condition at 33 percent good-to-excellent and 39 percent poor-to-very poor; cotton bolls opening at 59 percent compared to 49 percent last week, 46 percent last year, and a 5-year average of 51 percent; and cotton harvested at 11 percent compared to 8 percent last week, 8 percent last year, and a 5-year average of 11 percent. In Tennessee, cotton condition was estimated at 53 percent good-to-excellent and 23 percent poor-to-very poor; cotton bolls opening at 46 percent compared to 30 percent last week, 35 percent last year, and a 5-year average of 40 percent; and cotton harvested at 1 percent compared to a 5-year average of 2 percent. December 2022 cotton futures closed at 92.54 cents, down 6.75 cents since last Friday. For the week, December 2022 cotton futures traded between 92.38 and 99.74 cents. Dec/Mar and Dec/ Dec cotton futures spreads were -2.87 cents and -15.3 cents. Downside price protection could be obtained by purchasing a 93 cent December 2022 Put Option costing 4.46 cents establishing an 88.54 cent futures floor.
March 2023 cotton futures closed at 89.67 cents, down 6.48 cents since last Friday. December 2023 cotton futures closed at 77.24 cents, down 3.68 cents since last Friday.
Wheat
Wheat net sales reported by exporters were 6.7 million bushels for the 2022/23 marketing year and 0.06 million bushels for the 2023/24 marketing year. Exports for the same period were 24.9 million bushels. Wheat export sales were 47 percent of the USDA estimated total annual exports for the 2022/23 marketing year (June 1 to May 31), compared to the previous 5-year average of 52 percent. Wheat cash prices at elevators and barge points ranged from $7.80 to $9.01. December 2022 wheat futures closed at $8.80, up 21 cents since last Friday. December 2022 wheat futures traded between $8.19 and $9.22 this week. December wheat-to-corn price ratio was 1.30. March 2023 wheat futures closed at $8.93, up 19 cents since last Friday. Dec/Mar and Dec/Jul future spreads were 13 and 8 cents.
Nationally, the Crop Progress report estimated spring wheat harvested at 94 percent compared to 85 percent last week, 99 percent last year, and a 5-year average of 96 percent; winter wheat planted at 21 percent compared to 10 percent last week, 20 percent last year, and a 5-year average of 17 percent; and winter wheat emerged at 2 percent compared to 3 percent last year and a 5-year average of 2 percent. In Tennessee, winter wheat planted was estimated at 4 percent compared to 2 percent last week, 7 percent last year, and a 5-year average of 4 percent; and winter wheat emerged at 1 percent compared to 1 percent last year and a 5-year average of 0 percent. New crop wheat cash prices at elevators and barge points ranged from $7.87 to $8.89. July 2023 wheat futures closed at $8.88, up 13 cents since last Friday.
Downside price protection could be obtained by purchasing an $8.90 July 2023 Put Option costing 111 cents establishing a $7.79 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee