What Will 2023 Bring For Soybean And Corn Futures Prices?

DR. AARON SMITH

KNOXVILLE, TENNESSEE

   Compared to the previous five years, 2021 and 2022 corn and soybean harvest futures prices experienced increased trading ranges. December 2022 corn futures, from December 1, 2021 to contract expiration, had a trading range of $2.23 ($5.43 to $7.66). November 2022 soybean futures, from November 1, 2021 to contract expiration, had a trading range of $3.81 ($12.02 to $15.81). Tight U.S. stocks, the Russia-Ukraine conflict, global inflation, supply chain disruptions, and drought in the U.S. and South America have propelled prices higher but have also increased volatility. The 2021 and 2022 December contracts had 49 and 65 trading days with moves of more than 10 cents up or down. The previous five years had a total of 54 trading days with a greater than 10-cent move. Similarly, in 2021 and 2022, the November soybean contract had 45 and 74 trading days with a greater than 20-cent up or down move. For the previous five years, the November soybean contract had a total of 64 days with a greater than 20-cent up or down move. 

   What will 2023 bring for soybean and corn futures prices and how should this affect producers marketing and risk management decisions? As of January 19, the 2023 average daily closing futures prices for corn and soybean harvest contracts were near the top of the 2010-2022 price range – November 2023 soybeans have averaged $13.89 and December 2023 corn $5.98. As such, it would be reasonable to think that prices have more downside risk than upside potential, but this will be largely determined by weather. Additionally, there remains a tremendous amount of uncertainty in the global economy, geopolitics, and U.S and global production for the 2023 crop year, thus it is also likely that volatility will continue in corn and soybean futures markets. 

   So, what should producers do? Protecting against downside risk seems logical given current market conditions. This can be accomplished using numerous marketing tools (futures, contracts, options etc.). Put options provide an opportunity to establish a futures price floor. There are several put option strategies that producers can consider – at-the-money put options, out-of-the money put options, or a combination of put and call options to reduce premium expense. Each producer will have different risk tolerances, so there is no one size fits all approach. The key is to evaluate strategies and choose the one that makes the most sense for your individual circumstances. A simple example of an out-of-the money put option strategy (current December corn futures are trading at $6.00) is: 

   Buy a $5.50 December Put Option for 27 cents setting a $5.23 futures floor. This removes 87% ($5.23/$6.00) of the futures price risk, while leaving the upside open and the flexibility to set basis at a later date. 

   The current uncertainty and volatility in corn and soybean futures markets necessitates downside price protection. Producers should evaluate strategies that can remove price risk for the 2023 crop. 

   Corn

   Ethanol production for the week ending January 13 was 1.008 million barrels per day, up 65,000 from the previous week. Ethanol stocks were 23.402 million barrels, down 398,000 compared to last week. Corn net sales reported by exporters for January 6-12 were 44.6 million bushels for the 2022/23 marketing year and 3.4 million bushels for the 23/24 marketing year. Exports for the same period were up 85% compared to last week at 28.2 million bushels. Corn export sales and commitments were 47% 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 61%. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at West, Northwest, and West-Central elevators and barge points and weakened at North-Central and Mississippi River elevators and barge points. Overall, basis for the week ranged from 50 under to 42 over, with an average of 10 over the March futures at elevators and barge points. March 2023 corn futures closed at $6.76, up 1 cent since last Friday. For the week, March 2023 corn futures traded between $6.68 and $6.88. May 2023 corn futures closed at $6.74, up 1 cent since last Friday. Mar/May and Mar/Dec future spreads were -2 and -81 cents. 

   New crop cash prices ranged from $5.06 to $5.86 at elevators and barge points. December 2023 corn futures closed at $5.95, down 3 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 10 under to 55 over, with an average basis of 30 over the March futures contract. Soybean net weekly sales reported by exporters were 36.2 million bushels for the 2022/23 marketing year. Exports for the same period were up 27% compared to last week at 75.9 million bushels. Soybean export sales and commitments were 84% 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 77%. March 2023 soybean futures closed at $15.06, down 21 cents since last Friday. For the week, March 2023 soybean futures traded between $15.03 and $15.48. Jan/Mar and Jan/Nov future spreads were -5 and -154 cents. May 2023 soybean futures closed at $15.01, down 26 cents since last Friday. 

   November 2023 soybean futures closed at $13.52 down 41 cents since last Friday. New crop cash soybean prices at elevators and barge points ranged from $13.32 to $13.88. Downside price protection could be achieved by purchasing a $13.60 November 2023 Put Option which would cost 86 cents and set a $12.74 futures floor. Nov/Dec 2023 soybean-to-corn price ratio was 2.27 at the end of the week. 

   Cotton

   Delta upland cotton spot price quotes for January 19 were 83.89 cents/lb (41-4-34) and 86.14 cents/lb (31-3-35). Adjusted world price (AWP) was down 2.25 cents at 72.43 cents. Cotton net weekly sales reported by exporters were net sales of 209,400 bales for the 2022/23 marketing year and 26,900 bales for the 2023/24 marketing year. Exports for the same period were up 22% compared to last week at 183,100 bales. Upland cotton export sales were 80% 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 82%. March 2023 cotton futures closed at 86.7 cents, up 4.41 cents since last Friday. For the week, March 2023 cotton futures traded between 81.97 and 86.7 cents. May 2023 cotton futures closed at 87.06 cents, up 4.46 cents since last Friday. Mar/May and Mar/Dec cotton futures spreads were 0.36 cents and -2.03 cents. 

   December 2023 cotton futures closed at 84.67 cents, up 3.88 cents since last Friday. Downside price protection could be obtained by purchasing an 85 cent December 2023 Put Option costing 10.59 cents establishing a 74.41 cent futures floor. 

   Wheat

   Wheat net weekly sales reported by exporters were 17.4 million bushels for the 2022/23 marketing year and 1.3 million bushels for the 2023/24 marketing year. Exports for the same period were up 60% compared to last week at 11.4 million bushels. Wheat export sales were 74% 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 83%. Wheat cash prices at elevators and barge points ranged from $7.37 to $7.62. 

   March 2023 wheat futures closed at $7.41, down 2 cents since last Friday. March 2023 wheat futures traded between $7.27 and $7.60 this week. March wheat-to-corn price ratio was 1.10. May 2023 wheat futures closed at $7.49 down 3 cents since last Friday. Mar/May and Mar/Jul future spreads were 8 and 10 cents. 

   New crop wheat cash prices at elevators and barge points ranged from $6.92 to $7.46. July 2023 wheat futures closed at $7.51 down 2 cents since last Friday. Downside price protection could be obtained by purchasing a $7.60 July 2023 Put Option costing 62 cents establishing a $6.98 futures floor.  ∆