If Realized, The Rains Should Help Alleviate The Abnormally Dry Or Moderate Drought Conditions

DR. AARON SMITH

KNOXVILLE, TENNESSEE

Dryness has crept into Tennessee. As of June 8th, the U.S. drought monitor indicated that 49% of Tennessee was abnormally dry and 9% was in moderate drought. However, the NOAA precipitation forecast for June 10
to June 17 projects 2 to 5 inches of rain in the next seven days for most of Tennessee. Additionally, rain in the seven-day forecast is projected for a large portion of the Corn Belt, with greater quantities in the southern portions. If realized, the rains should help alleviate the abnormally dry or moderate drought conditions, that currently cover a large portion of the primary US corn and soybean producing regions. 

Many producers use cash forward contracts to secure a price for harvest or post-harvest delivery during the growing season. However, producers should disaggregate the offered cash forward contract price into a futures price and basis price to determine if an alternative pricing method is more beneficial given their expected local markets. For example, harvest cash forward contracts at West Tennessee elevators and barge points, on June 8, were $5.20/bu and the December futures contract closed at $5.33/bu indicating a negative basis of 13 cents. Whether a short hedge or hedge-to-arrive (HTA) contract would be preferable to a cash forward contract will depend on what your harvest basis expectation is. Disaggregating the cash price allows you to evaluate two factors that contribute to price and select the appropriate marketing tools to manage risk and obtain a higher net price. 

Global soybean ending stocks from the 2022/23 to 2023/24 marketing year are projected up 811 million bushels a 21.8% year- over-year increase. A great deal of uncertainty remains for the 2023 production year, but based on current USDA estimates further weakness in prices could occur. The recent WASDE increases the likelihood of further spreading between new crop and old crop cash prices. 

The USDA released the June WASDE report on Friday. Analysis of changes for corn, cotton, soybeans, and wheat is available online at: https://arec.tennessee.edu/extension/tennessee-market-highlights/monthly-crop-comments/.

Corn 

Ethanol production for the week ending June 2 was 1.036 million barrels per day, up 32,000 from the previous week. Ethanol stocks were 22.948 million barrels, up 0.616 million compared to last week. Corn net sales reported by exporters for May 26- June 1 were net sales of 6.8 million bushels for the 2022/23 marketing year and net sales cancellations of 4.2 million bushels for the 2023/24 marketing year. Exports for the same period were down 13% compared to last week at 49 million bushels. Corn export sales and commitments were 85% 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 99%. Across Tennessee, average corn basis (cash price- nearby futures price) weakened or remained unchanged at West, Northwest, West-Central, North-Central, and Mississippi River elevators and barge points. Overall, basis for the week ranged from 35 under to 32 over, with an average of 4 under the July futures at elevators and barge points. July 2023 corn futures closed at $6.04, down 5 cents since last Friday. For the week, July 2023 corn futures traded between $5.95 and $6.14. Jul/Sep and Jul/Dec future spreads were -80 and -74 cents. 

The Crop Progress report estimated corn condition at 64% good-to-excellent and 6% poor-to-very poor; corn planted at 96% compared to 92% last week, 93% last year, and a 5-year average of 91%; and corn emerged at 85% compared to 72% last week, 76% last year, and a 5-year average of 77%. In Tennessee, corn condition was 74% good-to-excellent and 7% poor-to-very poor; corn planted was estimated at 98% compared to 97% last week, 98% last year, and a 5-year average of 97%; and corn emerged at 95% compared to 87% last week, 90% last year, and a 5-year average of 90%. New crop cash prices ranged from $4.50 to $5.28 at elevators and barge points. September 2023 corn futures closed at $5.24, down 11 cents since last Friday. December 2023 corn futures closed at $5.30, down 11 cents since last Friday. Downside price protection could be obtained by purchasing a $5.40 December 2023 Put Option costing 49 cents establishing a $4.91 futures floor. 

Soybeans 

Across Tennessee the average soybean basis strengthened or remained unchanged at West, Northwest, West-Central, North- Central, and Mississippi River elevators and barge points. Basis ranged from 10 under to 20 over, with an average basis of 10 over the July futures contract. Soybean net weekly sales reported by exporters were 7.6 million bushels for the 2022/23 marketing year and 9.7 million for the 2023/24 marketing year. Exports for the same period were up 7% compared to last week at 9.1 million bushels. Soybean export sales and commitments were 93% 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 101%. July 2023 soybean f tures closed at $13.86, up 34 cents since last Friday. For the week, July 2023 soybean futures traded between $13.40 and $13.88. Jul/Aug and Jul/Nov future spreads were -90 and -182 cents. July soybean-to-corn price ratio was 2.29 at the end of the week. August 2023 soybean futures closed at $12.96, up 34 cents since last Friday. 

The Crop Progress report estimated soybean condition at 62% good-to-excellent compared to 7% poor-to-very poor; soybeans planted at 91% compared to 83% last week, 76% last year, and a 5-year average of 76%; and soybeans emerged at 74% compared to 56% last week, 54% last year, and a 5-year average of 56%. In Tennessee, the Crop Progress report estimated soybean condition at 72% good-to-excellent and 8% poor-to-very poor; soybeans planted at 76% compared to 68% last week, 71% last year, and a 5-year average of 67%; and soybeans emerged at 62% compared to 50% last week, 53% last year, and a 5-year aver- age of 49%. November 2023 soybean futures closed at $12.04, up 21 cents since last Friday. New crop cash soybean prices at elevators and barge points ranged from $11.35 to $11.94. Downside price protection could be achieved by purchasing a $12.20 November 2023 Put Option which would cost 81 cents and set an $11.39 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 June 8 were 82.06 cents/lb (41-4-34) and 84.31 cents/lb (31-3-35). Adjusted world price (AWP) was up 2.47 cents at 69.38 cents. Cotton net weekly sales reported by exporters were 480,400 bales for the 2022/23 marketing year and 30,800 bales for the 2023/24 marketing year. Exports for the same period were up 12% compared to last week at 317,000 bales. Upland cotton export sales were 113% 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 113%. July 2023 cotton futures closed at 84.04 cents, down 2.01 cents since last Friday. For the week, July 2023 cotton futures traded between 83.77 and 86.96 cents. Jul/Dec and Jul/Mar cotton futures spreads were -2.43 cents and -2.22 cents. 

The Crop Progress report estimated cotton condition at 51% good-to-excellent and 12% poor-to-very poor; cotton planted at 71% compared to 60% last week, 82% last year, and a 5-year average of 75%; and cotton squaring at 6% compared to 3% last week, 10% last year, and a 5-year average of 10%. In Tennessee, the Crop Progress report estimated cotton condition at 64% good-to-excellent and 9% poor-to-very poor; cotton planted at 96% compared to 85% last week, 93% last year, and a 5-year average of 90%; and cotton squaring at 4% compared to 2% last week, 11% last year, and a 5-year average 7%. December 2023 cotton futures closed at 81.82 cents, down 0.03 cents since last Friday. Downside price protection could be obtained by purchasing an 82 cent December 2023 Put Option costing 4.95 cents establishing a 77.05 cent futures floor. March 2024 cotton futures closed at 81.61 cents, down 0.04 cents since last Friday. 

Wheat 

Wheat net weekly sales reported by exporters were net sales of 8.6 million bushels for the 2023/24 marketing year. Exports for the same period were down 41% compared to last week at 10.2 million bushels. A total of 32.2 million bushels in sales were carried over from the 2022/2023 marketing year, which ended May 31. Accumulated exports for the 2022/23 marketing year were 652.5 million bushels, down 5 percent from the prior year’s total. Wheat export sales were 18% of the USDA estimated total annual exports for the 2023/24 marketing year (June 1 to May 31), compared to the previous 5-year average of 24%. Wheat cash prices at elevators and barge points ranged from $5.73 to $6.26. 

The Crop Progress report estimated winter wheat condition at 36% good-to-excellent and 34% poor-to-very poor; winter wheat headed at 82% compared to 72% last week, 78% last year, and a 5-year average of 81%; and winter wheat harvested at 4% compared to 5% last year and a 5-year average of 4%. Spring wheat condition was estimated at 64% good-to-excellent and 2% poor-to-very poor; spring wheat planted at 93% compared to 85% last week, 81% last year, and a 5-year average of 93%; and spring wheat emerged at 76% compared to 57% last week, 53% last year, and a 5-year average of 74%. In Tennessee, winter wheat condition was estimated at 72% good-to-excellent and 5% poor-to-very poor; winter wheat coloring at 95% com- pared to 89% last week, 91% last year, and a 5-year average of 89%; winter wheat mature at 51% compared to 22% last week and 20% last year; and winter wheat harvested at 3% compared to 1% last week and 1% last year. July 2023 wheat futures closed at $6.30, up 11 cents since last Friday. July 2023 wheat futures traded between $6.11 and $6.48 this week. July wheat- to-corn price ratio was 1.04. Jul/Sep and Jul/Jul future spreads were 11 and 56 cents. September 2023 wheat futures closed at $6.41, up 9 cents since last Friday. July 2024 wheat futures closed at $6.86, up 4 cents since last Friday. Downside price protection could be obtained by purchasing a $6.90 July 2024 Put Option costing 73 cents establishing a $6.17 futures floor.  ∆

DR. AARON SMITH: University of Tennessee