Currently, December 2023 corn futures are trading near $6.00
DR. AARON SMITH
KNOXVILLE, TENNESSEE
Should there be concern over a decline in new crop corn and soybean futures prices? Many producers are still working on selling the 2022 crop. However, it is important to evaluate opportunities for price risk management for future crops. Currently, December 2023 corn futures are trading near $6.00 and November 2023 soybeans near $14.00. In the last 13 years, for the new crop marketing cycle, there was only one year, for corn (2013), and zero for soybeans when new crop futures have traded higher at this point in time.
This does not mean that prices cannot go higher. Under the current, uncertain economic and geopolitical environment, a reasonable argument can be articulated for increased prices in 2023. However, as a producer, the primary concern should be price protection against declines. As such, it is important to acknowledge the difference in strategies that fix the price versus those that provide more flexible price protection. Pricing production through a short hedge or forward contract in this market can be risky, due to production uncertainty, the potential for price increases (should a major production disruption occur), and margin requirements in an elevated interest rate environment.
A strategy that can provide price protection while not establishing a final price or increasing production risk is put options. Put options establish a futures price floor while leaving the upside potential in the futures market. A challenge for many producers when evaluating purchasing put options is the premium versus the strike price. Simply stated, the higher the put option strike price the higher the premium, the lower the strike price the lower the premium.
On December 9, a $14.00 November 2023 put option could be purchased for $0.94 cents establishing a $13.06 futures price floor. This may be more premium than several producers would prefer and is likely not the targeted selling price for many producers, however it is important to note that if used as a short-term price protection strategy apportion of the premium could be recovered when greater information (crop insurance prices, planting intentions, weather forecasts, global economic growth) is available regarding the 2023 crop. This strategy buys time before finalizing a price while protecting against declines.
Corn
Ethanol production for the week ending December 2 was 1.077 million barrels per day, up 59,000 from the previous week. Ethanol stocks were 23.257 million barrels, up 0.323 million compared to last week. Corn net sales reported by exporters for November 25 to December 1 were 27.2 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 up 161% compared to last week at 35.4 million bushels. Corn export sales and commitments were 35% of the USDA estimated total annual exports for the 2022/23 marketing year (September 1 to Au- gust 31) compared to the previous 5-year average of 51%. 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 35 over, with an average of 9 over the March futures at elevators and barge points. January cash prices ranged from $6.02 to $6.78 at elevators and barge points. March 2023 corn futures closed at $6.44, down 2 cents since last Friday. For the week, March 2023 corn futures traded between $6.35 and $6.49. May 2023 corn futures closed at $6.45, down 2 cents since last Friday. Mar/May and Mar/Dec future spreads were 11 and -51 cents.
December 2023 corn futures closed at $5.93, down 5 cents since last Friday. Downside price protection could be obtained by purchasing a $6.00 December 2023 Put Option costing 53 cents establishing a $5.47 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 17 under to 41 over, with an average basis of 17 over the January futures contract. Soybean net weekly sales reported by exporters were 63.1 million bushels for the 2022/23 marketing year and 1.1 million bushels for the 2023/23 marketing year. Exports for the same period were up 6% compared to last week at 82.6 million bushels. Soybean export sales and commitments were 70% 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 67%. January 2023 soybean futures closed at $14.83, up 45 cents since last Friday. For the week, January 2023 soybean futures traded between $14.35 and $14.92. Jan/Mar and Jan/Nov future spreads were 5 and -85 cents. March 2023 soybean futures closed at $14.88, up 42 cents since last Friday.
November 2023 soybean futures closed at $13.98, up 21 cents since last Friday. New crop cash soybean prices at elevators and barge points ranged from $13.38 to $13.79. Downside price protection could be achieved by purchasing a $14.00 November 2023 Put Option which would cost 95 cents and set a $13.05 futures floor. Nov/Dec 2023 soybean-to-corn price ratio was 2.36 at the end of the week.
Cotton
Delta upland cotton spot price quotes for December 8 were 81.6 cents/lb (41-4-34) and 83.85 cents/lb (31-3-35). Adjusted world price (AWP) was up 2.14 cents at 75.17 cents. Cotton net weekly sales reported by exporters were net sales of 32,600 bales for the 2022/23 marketing year and 26,400 bales for the 2023/24 marketing year. Exports for the same period were up 1% compared to last week at 141,100 bales. Upland cotton export sales were 75% 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 71%. March 2023 cotton futures closed at 80.95 cents, down 2.25 cents since last Friday. For the week, March 2023 cotton futures traded between 80.1 and 86.39 cents. May 2023 cotton futures closed at 80.9 cents, down 1.66 cents since last Friday. Mar/May and Mar/Dec cotton futures spreads were -0.05 cents and -2.63 cents.
December 2023 cotton futures closed at 78.32 cents, down 1.11 cents since last Friday. Downside price protection could be obtained by purchasing a 79 cent December 2023 Put Option costing 10.13 cents establishing a 68.87 cent futures floor.
Wheat
Wheat net weekly sales reported by exporters were 7.0 million bushels for the 2022/23 marketing year. Exports for the same period were down 5% compared to last week at 9.5 million bushels. Wheat export sales were 65% 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 72%. Wheat cash prices at elevators and barge points ranged from $6.78 to $7.45. March 2023 wheat futures closed at $7.34, down 27 cents since last Friday. March 2023 wheat futures traded between $7.23 and $7.68 this week. March wheat-to-corn price ratio was 1.14. May 2023 wheat futures closed at $7.44 down 29 cents since last Friday. Mar/May and Mar/Jul future spreads were 10 and 15 cents.
New crop wheat cash prices at elevators and barge points ranged from $6.89 to $7.49. July 2023 wheat futures closed at $7.49, down 30 cents since last Friday. Downside price protection could be obtained by purchasing a $7.50 July 2023 Put Option costing 62 cents establishing a $6.88 futures floor. ∆
DR. AARON SMITH: University of Tennessee