Corn, cotton, soybeans, and wheat were up for the week

DR. AARON SMITH

KNOXVILLE, TENNESSEE

On Wednesday the Federal Reserve raised interest rates by 0.25%. The change was the 10th  increase in interest rates in 14 months. The Federal Reserve has been raising interest rates to reduce the annual inflation rate
to closer to its target of around 2%. Annualized monthly inflation peaked at 9.06% in June 2022 and has since declined to the most recent estimate of 4.98% on March 31, 2023. The bank prime lending rate is now at 8.25%, up 5% compared to March 15, 2022. The increase in interest rates has numerous implications for agricultural producers – increased interest expense on operating capital, reduced access to credit, and higher capital recovery rates on medium-to-long term capital investments (machinery, livestock, land etc.). 

Rising interest rates also have implications for crop marketing. For those producers with crops in storage, the interest cost has increased. The value of the crop in storage could be used to pay down operating debt or term debt or allocated to an investment that provides a rate of return. For example, based on daily nearby corn futures market closing prices and the average daily interest cost from September 23, 2022, to May 1, 2023, the daily interest cost for corn has varied between $0.000994 and $0.001535 per bushel (daily nearby futures closing price multiplied by the daily interest rate divided by 365). The aggregated interest expense over this time period is $0.30 per bushel. This estimate does not include additional handling/transportation costs, shrink/storage losses, and capital recovery for storage systems (bins etc.). 

For Tennessee, producers in a low interest rate environment storing corn usually provides increased returns, relative to selling at harvest. The 10-year average cash price increase at elevators and barge points for Tennessee producers from 2013 to 2022, for storing corn from the harvest low in September to May was $0.99 per bushel. For most producers this covered storage costs, interest costs, and increased profit. This year, when accounting for increased interest costs and declining futures prices, the return to storage has been diminished. However, it is important to note that basis in Tennessee has remained very strong and will likely continue to be strong into the summer. Storage may still in pay in 2023 for some producers. Storage is still one of the most beneficial marketing tools for Tennessee corn producers, but with increased interest rates producers need to account for the increased cost of holding corn in storage. 

Corn

Ethanol production for the week ending April 28 was 0.976 million barrels per day, up 9,000 from the previous week. Ethanol stocks were 23.363 million barrels, down 0.943 million compared to last week. Corn net sales reported by exporters for April 21 -27 were net sales cancelations of 12.4 million bushels for the 2022/23 marketing year and net sales of 4.8 million bushels for the 2023/24 marketing year. Exports for the same period were up 58% compared to last week at 66.9 million bushels – a marketing year high. Corn export sales and commitments were 81% 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 94%. Across Tennessee, average corn basis (cash price-nearby futures price) weakened or remained unchanged at West, Northwest, West-Central, and Mississippi River elevators and barge points and strengthened at North-Central elevators and barge points. Overall, basis for the week ranged from 35 under to 59 over, with an average of 14 over the July futures at elevators and barge points. July 2023 corn futures closed at $5.96, up 11 cents since last Friday. For the week, July 2023 corn futures traded between $5.69 and $5.99. Jul/ Sep and Jul/Dec future spreads were -59 and -62 cents. 

The Crop Progress report estimated corn planted at 26% compared to 14% last week, 13% last year, and a 5-year average of 26%; and corn emerged at 6% compared to 3% last week, 3% last year, and a 5-year average of 5%. In Tennessee, corn planted was estimated at 60% compared to 49% last week, 38% last year, and a 5-year average of 46%; and corn emerged at 23% com- pared to 11% last week, 9% last year, and a 5-year average of 19%. New crop cash prices ranged from $4.40 to $5.24 at elevators and barge points. September 2023 corn futures closed at $5.37, up 9 cents since last Friday. December 2023 corn futures closed at $5.34, up 7 cents since last Friday. Downside price protection could be obtained by purchasing a $5.40 December 2023 Put Option costing 33 cents establishing a $5.07 futures floor. 

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 even to 100 over, with an average basis of 26 over the July futures contract. Soybean net weekly sales reported by exporters were 10.6 million bushels for the 2022/23 marketing year and 2.5 million for the 2023/24 marketing year. Exports for the same period were up 24% compared to last week at 20.6 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 97%. July 2023 soybean futures closed at $14.36, up 17 cents since last Friday. For the week, Jul 2023 soybean futures traded between $13.62 and $14.40. Jul/Aug and Jul/Nov future spreads were -63 and -156 cents. July soybean-to-corn price ratio was 2.41 at the end of the week. August 2023 soybean futures closed at $3.73, up 11 cents since last Friday. 

 The Crop Progress report estimated soybeans planted at 19% compared to 9% last week, 7% last year, and a 5-year average of 11%. In Tennessee, the Crop Progress report estimated soybeans planted at 23% compared to 16% last week, 8% last year, and a 5-year average of 8%. November 2023 soybean futures closed at $12.80, up 17 cents since last Friday. New crop cash soybean prices at elevators and barge points ranged from $12.29 to $12.78. Downside price protection could be achieved by purchasing a $12.80 November 2023 Put Option which would cost 62 cents and set a $12.18 futures floor. Nov/Dec 2023 soybean-to-corn price ratio was 2.40 at the end of the week. 

Cotton

Delta upland cotton spot price quotes for May 4 were 80.51 cents/lb (41-4-34) and 82.76 cents/lb (31-3-35). Adjusted world price (AWP) was up 0.16 cents at 66.69 cents. Cotton net weekly sales reported by exporters were 231,300 bales for the 2022/23 marketing year and 26,900 bales for the 2023/24 marketing year. Exports for the same period were up 4% compared to last week at 414,000 bales. Upland cotton export sales were 106% 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 107%. July 2023 cotton futures closed at 83.9 cents, up 3.1 cents since last Friday. For the week, July 2023 cotton futures traded between 78.56 and 84.52 cents. Jul/Dec and Jul/Mar cotton futures spreads were -0.66 cents and -0.89 cents. 

The Crop Progress report estimated cotton planted at 15% compared to 12% last week, 15% last year, and a 5-year average of 14%. In Tennessee, the Crop Progress report estimated cotton planted at 5% compared to 3% last week, 3% last year, and a 5- year average of 3%. December 2023 cotton futures closed at 83.24 cents, up 2.14 cents since last Friday. Downside price protection could be obtained by purchasing an 84 cent December 2023 Put Option costing 6.72 cents establishing a 77.28 cent futures floor. March 2024 cotton futures closed at 83.24 cents, up 2.14 cents since last Friday. 

Wheat

Wheat net weekly sales reported by exporters were 7.8 million bushels for the 2022/23 marketing year and 10.3 million bushels for the 2023/24 marketing year. Exports for the same period were down 5% compared to last week at 10.6 million bushels. Wheat export sales were 90% 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 105%. Wheat cash prices at elevators and barge points ranged from $5.79 to $6.38. 

The Crop Progress report estimated winter wheat condition at 28% good-to-excellent and 42% poor-to-very poor; and winter wheat headed at 25% compared to 18% last week, 21% last year, and a 5-year average of 23%. Spring wheat planted was estimated at 12% compared to 5% last week, 18% last year, and a 5-year average of 22%; and spring wheat emerged at 2% compared to 1% last week, 5% last year, and a 5-year average of 6%. In Tennessee, winter wheat condition was estimated at 67% good-to-excellent and 7% poor-to-very poor; winter wheat jointing at 94% compared to 91% last week, 92% last year, and a 5- year average of 94%; and winter wheat headed at 61% compared to 38% last week, 51% last year, and a 5-year average of 52%. New crop wheat cash prices at elevators and barge points ranged from $5.69 to $6.37. July 2023 wheat futures closed at $6.60, up 27 cents since last Friday. July 2023 wheat futures traded between $6.03 and $6.63 this week. July wheat-to-corn price ratio was 1.11. Jul/Sep and Jul/Jul future spreads were 11 and 39 cents. Downside price protection could be obtained by purchasing a $6.65 July 2023 Put Option costing 36 cents establishing a $6.29 futures floor. September 2023 wheat futures closed at $6.71, up 26 cents since last Friday.  ∆

DR. AARON SMITH: University of Tennessee