Grain And Commodity Updates
DR. AARON SMITH
KNOXVILLE, TENNESSEE
The number one question I receive from producers is where are prices headed? My answer is simple, up, down, or sideways. They typically are not satisfied with my response. So, I counter with a more important question, what are your price risks and how can they be mitigated through prudent marketing and risk management? When determining price risk management, the first question is what crop are you protecting? For example, old crop (in storage) is very different from new crop (to be planted in spring 2023). For Tennessee corn and soybean producers, given the uncertainty in futures markets, a reasonable price risk management strategy is to secure a price in the futures market now and let basis improve in the New Year, thus increasing your cash price without exposure to futures market risk. For new crop, at this time of year, I don’t like fixing a price (cash forward contracts or a short hedge). A strategy producers should be considering is bridging the price risk gap until crop insurance prices are determined. This can be accomplished through futures or options, but I prefer put options, due to the known maximum loss and ability to recoup premium through time value. This strategy buys time before committing to planting a crop or establishing a price. The put options position can easily be exited and a portion of the premium recovered if prices remain high. If prices drop you have the price floor above the projected crop insurance price.
The most challenging crop, to market right now, is cotton. For old crop, opportunities have been missed during this crop marketing cycle. Hindsight is 20/20, but it may be best to wait until March and reevaluate pricing opportunities. For new crop, I see no pricing strategy at this point in time. Futures prices are well below the cost of production and one of two things are likely to happen. One, prices stay low, and producers should evaluate their crop planting mix or two, cotton prices rebound and there is a better opportunity to price cotton before planting.
Corn
Ethanol production for the week ending November 25 was 1.018 million barrels per day, down 23,000 from the previous week. Ethanol stocks were 22.934 million barrels, up 0.105 million compared to last week. Corn net sales reported by exporters for November 18-24 were 23.7 million bushels for the 2022/23 marketing year and 1.2 million bushels for the 2023/24 marketing year. Exports for the same period were down 25% compared to last week at 13.6 million bushels. Corn export sales and commitments were 34% of the USDA estimated total annual exports for the 2022/23 marketing year (September 1 to August 31) compared to the previous 5-year average of 49%. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at West, Northwest, North-Central, West-Central, and Mississippi River elevators and barge points. Overall, basis for the week ranged from 50 under to 38 over, with an average of 6 over the December futures at elevators and barge points. January cash prices ranged from $6.16 to $7.01 at elevators and barge points. December 2022 corn futures closed at $6.35, down 33 cents since last Friday. For the week, December 2022 corn futures traded between $6.29 and $6.71. Dec/Mar and Dec/Dec future spreads were 11 and -37 cents.
March 2023 corn futures closed at $6.46, down 25 cents since last Friday. December 2023 corn futures closed at $5.98, down 12 cents since last Friday. Downside price protection could be obtained by purchasing a $6.00 December 2023 Put Option costing 52 cents establishing a $5.48 futures floor.
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 35 under to 40 over, with an average basis of 15 over the January futures contract. Soybean net weekly sales reported by exporters were 25.5 million bushels for the 2022/23 marketing year. Exports for the same period were down 13% compared to last week at 77.8 million bushels. Soybean export sales and commitments were 67% of the USDA estimated total annual exports for the 2022/23 marketing year (September 1 to August 31), compared to the previous 5-year average of 65%. In Tennessee, soybeans harvested were estimated at 96% compared to 93% last week, 91% last year, and a 5-year average of 91%. January 2023 soybean futures closed at $14.38, up 2 cents since last Friday. For the week, January 2023 soybean futures traded between $14.24 and $14.78. Jan/Mar and Jan/Nov future spreads were 8 and -61 cents.
January cash soybean prices at elevators and barge points ranged from $14.72 to $15.10. March 2023 soybean futures closed at $14.46, up 4 cents since last Friday. November 2023 soybean futures closed at $13.77, down 2 cents since last Friday. Down- side price protection could be achieved by purchasing a $13.80 November 2023 Put Option which would cost 94 cents and set a $12.86 futures floor. Nov/Dec 2023 soybean-to-corn price ratio was 2.26 at the end of the week.
Cotton
Delta upland cotton spot price quotes for November 30 were 85.36 cents/lb. (41-4-34) and 87.61 cents/lb. (31-3-35). Adjusted world price (AWP) was down 1.58 cents at 73.03 cents. Cotton net weekly sales reported by exporters were net sales of 16,500 bales for the 2022/23 marketing year and 11,000 bales for the 2023/24 marketing year. Exports for the same period were down 3% compared to last week at 139,500 bales. Upland cotton export sales were 74% of the USDA estimated total annual exports for the 2022/23 marketing year (August 1 to July 31), compared to the previous 5-year average of 70%. Nationally, the Crop Progress report estimated cotton harvested at 84% compared to 79% last week, 84% last year, and a 5-year average of 79%. In Tennessee, cotton harvested was estimated at 95% compared to 90% last week, 92% last year, and a 5-year average of 92%. December 2022 cotton futures closed at 84.94 cents, up 2.94 cents since last Friday. For the week, December 2022 cotton futures traded between 79.99 and 87.76 cents. Dec/Mar and Dec/Dec cotton futures spreads were -1.08 cents and -4.85 cents.
March 2023 cotton futures closed at 83.2 cents, up 3.02 cents since last Friday. December 2023 cotton futures closed at 79.43 cents, up 3.43 cents since last Friday. Downside price protection could be obtained by purchasing an 80 cent December 2023 Put Option costing 10.14 cents establishing a 69.86 cent futures floor.
Wheat
Wheat net weekly sales reported by exporters were 5.7 million bushels for the 2022/23 marketing year and 0.03 million bushels for the 2023/24 marketing year. Exports for the same period were up 96% compared to last week at 10.0 million bushels. Wheat export sales were 64% 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 71%. Wheat cash prices at elevators and barge points ranged from $7.06 to $7.69. December 2022 wheat futures closed at $7.37, down 38 cents since last Friday. December 2022 wheat futures traded between $7.37 and $7.74 this week. December wheat-to-corn price ratio was 1.16. March 2023 wheat futures closed at $7.61 down 36 cents since last Friday. Dec/Mar and Dec/Jul future spreads were 24 and 42 cents.
Nationally, the Crop Progress report estimated winter wheat condition at 34% good-to-excellent and 26% poor-to-very poor; and winter wheat emerged at 91% compared to 87% last week, 91% last year, and a 5-year average of 90%. In Tennessee, winter wheat condition was 55% good-to-excellent and 2% poor-to-very poor; winter wheat planted at 96% compared to 93% last week and 94% last year; and winter wheat emerged at 85% compared to 77% last week and 82% last year. New crop wheat cash prices at elevators and barge points ranged from $7.40 to $7.94. July 2023 wheat futures closed at $7.79, down 32 cents since last Friday. Downside price protection could be obtained by purchasing a $7.80 July 2023 Put Option costing 67 cents establishing a $7.13 futures floor. ∆
DR. AARON SMITH: University of Tennessee