May-November soybean futures contract spread hit a life of contract high

DR. AARON SMITH

KNOXVILLE, TENNESSEE

On Friday, April 14, the old crop–new crop corn futures spread expanded to $1.06 1⁄4 per bushel the largest spread between the May and December futures contracts since May 16, 2022. The price spread is amplified in cash
markets in Tennessee, due to strong old crop basis compared to current new crop basis offerings. There remains a large amount of uncertainty in price direction for new crop corn. However, based on current market information there continues to be a bearish undertone in new crop prices. Managing price risk through purchase of out-of-the money put option contracts, for the new crop, is worth considering at this juncture. This strategy can be used to mitigate a portion of the futures price risk and buy time until more information is known about the 2023 crop. If new crop prices rise, the option position can be exited and a portion of the premium recovered. 

The May-November soybean futures contract spread hit a life of contract high on Friday at $1.99. New crop prices slid below $13.00 on Friday before improving at close, closing at $13.01 1⁄2. Old crop price dynamics will be interesting to analyze through the spring and summer. Brazil has produced a record crop this year, while Argentina has had one of its worst droughts in 40 years, dramatically reducing its production. Sourcing soybeans for Argentina’s domestic crushing industry will likely redirect raw soybeans form other South American countries, including Brazil, thus absorbing a portion of Brazil’s record crop. Quantities and impact on the source of global soybean, soybean meal, and soybean oil exports remain uncertain at this juncture. 

Corn

 Ethanol production for the week ending April 7 was 0.959 million barrels per day, down 44,000 from the previous week. Ethanol stocks were 25.128 million barrels, down 0.008 million compared to last week. Corn net sales reported by exporters for March 31 to April 6 were 20.8 million bushels for the 2022/23 marketing year. Exports for the same period were down 19% compared to last week at 36.1 million bushels. Corn export sales and commitments were 80% 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 90%. Across Tennessee, average corn basis (cash price-nearby futures price) weakened at North-Central elevators and barge points and strengthened or remained unchanged at West, Northwest, West-Central, and Mississippi River elevators and barge points. Overall, basis for the week ranged from 65 under to 30 over, with an average of 1 over the May futures at elevators and barge points. May 2023 corn futures closed at $6.66, up 23 cents since last Friday. For the week, May 2023 corn futures traded be- tween $6.40 and $6.68. July 2023 corn futures closed at $6.35, up 16 cents since last Friday. May/Jul and May/Dec future spreads were -31 and -106 cents. 

The Crop Progress report estimated corn planted at 3% compared to 2% last week, 2% last year, and a 5-year average of 2%. In Tennessee, corn planted was estimated at 5% compared to 1% last week, 3% last year, and a 5-year average of 6%. New crop cash prices ranged from $4.74 to $5.62 at elevators and barge points. December 2023 corn futures closed at $5.60, up 4 cents since last Friday. Downside price protection could be obtained by purchasing $5.60 December 2023 Put Option costing 40 cents establishing a $5.20 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 30 over, with an average basis of 15 over the May futures contract. Soybean net weekly sales reported by exporters were 13.4 million bushels for the 2022/23 marketing year and 2.4 million bushels for the 2023/24 marketing year. Exports for the same period were up 22% compared to last week at 25.1 million bushels. Soybean export sales and commitments were 92% 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 95%. May 2023 soybean futures closed at $15.00, up 8 cents since last Friday. For the week, May 2023 soybean futures traded between $14.82 and $15.22. May/Jul and May/Nov future spreads were -33 and -199 cents. July 2023 soybean futures closed at $14.67, up 5 cents since last Friday. 

In Tennessee, the Crop Progress report estimated soybeans planted at 1%. November 2023 soybean futures closed at $13.01, down 8 cents since last Friday. New crop cash soybean prices at elevators and barge points ranged from $12.76 to $13.34. Downside price protection could be achieved by purchasing a $13.20 November 2023 Put Option which would cost 83 cents and set a $12.37 futures floor. Nov/Dec 2023 soybean-to-corn price ratio was 2.32 at the end of the week. 

Cotton

Delta upland cotton spot price quotes for April 13 were 82.60 cents/lb (41-4-34) and 84.85 cents/lb (31-3-35). Adjusted world price (AWP) was up 0.17 cents at 70.05 cents. Cotton net weekly sales reported by exporters were net sales of 143,200 bales for the 2022/23 marketing year and 11,100 bales for the 2023/24 marketing year. Exports for the same period were up 34% compared to last week at 334,600 bales. Upland cotton export sales were 102% 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 103%. May 2023 cotton futures closed at 82.86 cents, down 0.34 cents since last Friday. For the week, May 2023 cotton futures traded between 81.9 and 83.81 cents. July 2023 cotton futures closed at 82.93 cents, down 0.54 cents since last Friday. May/Jul and May/Dec cotton futures spreads were 0.07 cents and -0.06 cents. 

The Crop Progress report estimated cotton planted at 6% compared to 4% last week, 7% last year, and a 5-year average of 7%. December 2023 cotton futures closed at 82.8 cents, down 0.44 cents since last Friday. Downside price protection could be obtained by purchasing an 83 cent December 2023 Put Option costing 7.09 cents establishing a 77.91 cent futures floor. 

Wheat

Wheat net weekly sales reported by exporters were 5.0 million bushels for the 2022/23 marketing year and 2.5 million bushels for the 2023/24 marketing year. Exports for the same period were up 42% compared to last week at 10.3 million bushels. Wheat export sales were 87% 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 102%. Wheat cash prices at elevators and barge points ranged from $6.40 to $6.80. May 2023 wheat futures closed at $6.82, up 7 cents since last Friday. May 2023 wheat futures traded between $6.61 and $6.87 this week. May wheat-to-corn price ratio was 1.02. May/Jul and May/Sep future spreads were 10 and 20 cents. 

The Crop Progress report estimated winter wheat condition at 27% good-to-excellent and 37% poor-to-very poor; and winter wheat headed at 7% compared to 6% last week, 5% last year, and a 5-year average of 4%. Spring wheat planted was estimated at 1% compared to 6% last year and a 5-year average of 4%. In Tennessee, winter wheat condition was estimated at 58% good- to-excellent and 12% poor-to-very poor; winter wheat jointing at 67% compared to 42% last week, 54% last year, and a 5-year average of 60%; and winter wheat headed at 1% compared to 0% last week, 1% last year, and a 5-year average of 2%. New crop wheat cash prices at elevators and barge points ranged from $6.36 to $6.86. July 2023 wheat futures closed at $6.92, up 4 cents since last Friday. Downside price protection could be obtained by purchasing a $6.95 July 2023 Put Option costing 39 cents establishing a $6.56 futures floor. September 2023 wheat futures closed at $7.02, up 2 cents since last Friday.  ∆

DR. AARON SMITH: University of Tennessee