The Current Market Highlights The Benefit Of Incremental Sales

DR. AARON SMITH

KNOXVILLE, TENNESSEE

Weather provided wild swings in commodity markets this week. December corn had daily movements of unchanged, +31 1⁄4, -8, and -32 3⁄4 cents; November soybeans moved +1⁄2, +34 1⁄4, -37 1⁄2, and -29 1⁄2 cents; July wheat moved +7 3⁄4, +38 3⁄4, +4 1⁄2, and -5 3⁄4 cents; and December cotton moved +0.60, -0.18, -0.37, and -1.48 cents. Precipitation forecasts continue to be the dominant factor in markets with changes met with large price swings. The volatility in markets can be unnerving for even the most seasoned commodity marketer. 

What should producers do? The current market is tricky to navigate but it is supportive of two considerations. First, producers need to know their cost of production and formulate a yield expectation based on the best available information for their farms. This will allow them to determine the futures market and basis prices they are making or losing money. Second, the current market highlights the benefit of incremental sales. Making incremental sales will avoid price lows and spread risk throughout the marketing year. Producers will have varying comfort levels with the amount of production that they want to price at various times of the year. This will be influenced by yield /production estimates, past pricing experiences, and access to storage. In a strong weather market, like the current one, being overly aggressive with pricing has potential downfalls. 

For most producers in Tennessee, if APH yield is achieved, new crop harvest futures of $5.88 for corn, $13.10 for soybeans, and $7.33 for wheat – plus basis will result in profitable outcomes. Getting some price risk off the table may be warranted. Out-of- the-money options are a worthwhile consideration to remove downside price risk without fixing a final price should drought persist and markets rally. Current market prices for cotton are far more challenging. Sub-80 cent cotton will not be attractive to establish a price for almost every Tennessee cotton producer. Thus, it is likely more advantageous to see if prices will improve later in the year. 

Corn

Ethanol production for the week ending June 16 was 1.052 million barrels per day, up 34,000 from the previous week. Ethanol stocks were 22.804 million barrels, up 0.578 million compared to last week. Corn net sales reported by exporters for June 9-15 were net sales of 1.4 million bushels for the 2022/23 marketing year and 1.9 million bushels for the 2023/24 marketing year. Exports for the same period were down 44% compared to last week at 26.3 million bushels. Corn export sales and commitments were 88% 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 100%. 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 50 under to 8 over, with an average of 31 under the July futures at elevators and barge points. July 2023 corn futures closed at $6.30, down 10 cents since last Friday. For the week, July 2023 corn futures traded between $6.29 and $6.72. Jul/Sep and Jul/Dec future spreads were -46 and -42 cents. 

The Crop Progress report estimated corn condition at 55% good-to-excellent and 12% poor-to-very poor; and corn emerged at 96% compared to 93% last week, 94% last year, and a 5-year average of 94%. In Tennessee, corn condition was 64% good-to- excellent and 11% poor-to-very poor; corn emerged was 99% compared to 97% last week, 98% last year, and a 5-year average of 98%; and corn silking was 4% compared to 2% last week, 10% last year, and a 5-year average of 9%. New crop cash prices ranged from $5.17 to $6.14 at elevators and barge points. September 2023 corn futures closed at $5.84, down 10 cents since last Friday. December 2023 corn futures closed at $5.88, down 9 cents since last Friday. Downside price protection could be obtained by purchasing a $5.90 December 2023 Put Option costing 48 cents establishing a $5.42 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 even to 10 over, with an average basis of 7 over the July futures contract. Soybean net weekly sales reported by exporters were 16.8 million bushels for the 2022/23 marketing year and 6.2 million for the 2023/24 marketing year. Exports for the same period were up 174% compared to last week at 14.2 million bushels. Soybean export sales and commitments were 96% 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 102%. July 2023 soybean futures closed at $14.99, up 28 cents since last Friday. For the week, July 2023 soybean futures traded between $14.59 and $15.21. Jul/ Aug and Jul/Nov future spreads were -90 and -184 cents. July soybean-to-corn price ratio was 2.37 at the end of the week. August 2023 soybean futures closed at $14.04, down 3 cents since last Friday. 

The Crop Progress report estimated soybean condition at 54% good-to-excellent and 12% poor-to-very poor; and soybeans emerged at 92% compared to 86% last week, 81% last year, and a 5-year average of 81%. In Tennessee, the Crop Progress report estimated soybean condition at 65% good-to-excellent and 10% poor-to-very poor; soybeans planted at 87% compared to 82% last week, 85% last year, and a 5-year average of 85%; soybeans emerged at 77% compared to 72% last week, 76% last year, and a 5-year average of 72%; and soybeans blooming at 10%, compared to 2% last week, 3% last year, and a 5-year average of 2%. November 2023 soybean futures closed at $13.10, down 32 cents since last Friday. New crop cash soybean prices at elevators and barge points ranged from $12.92 to $13.60. Downside price protection could be achieved by purchasing a $13.20 November 2023 Put Option which would cost 80 cents and set a $12.40 futures floor. Nov/Dec 2023 soybean-to-corn price ratio was 2.23 at the end of the week. 

Cotton

Delta upland cotton spot price quotes for June 22 were 78.79 cents/lb (41-4-34) and 81.04 cents/lb (31-3-35). Adjusted world price (AWP) was down 1.5 cents at 65.5 cents. Cotton net weekly sales reported by exporters were 42,700 bales for the 2022/23 marketing year and 187,600 bales for the 2023/24 marketing year. Exports for the same period were down 3% com- pared to last week at 236,800 bales. Upland cotton export sales were 111% 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 114%. July 2023 cotton futures closed at 78.06 cents, down 3.29 cents since last Friday. For the week, July 2023 cotton futures traded between 76.91 and 81.78 cents. Jul/Dec and Jul/Mar cotton futures spreads were 0.82 cents and 0.61 cents. 

The Crop Progress report estimated cotton condition at 47% good-to-excellent and 20% poor-to-very poor; cotton planted at 89% compared to 81% last week, 95% last year, and a 5-year average of 94%; cotton squaring at 19% compared to 11% last week, 21% last year, and a 5-year average of 21%; and cotton setting bolls at 3% compared to 5% last year, and a 5-year average of 4%. In Tennessee, the Crop Progress report estimated cotton condition at 62% good-to-excellent and 7% poor-to-very poor; cotton planted at 99% compared to 98% last week, 98% last year, and a 5-year average of 98%; cotton squaring at 23% compared to 10% last week, 23% last year, and a 5-year average of 26%; and cotton setting bolls at 1% compared to 1% last year and a 5-year average of 0%. December 2023 cotton futures closed at 78.67 cents, down 1.41 cents since last Friday. Down- side price protection could be obtained by purchasing a 79 cent December 2023 Put Option costing 4.65 cents establishing a 74.65 cent futures floor. March 2024 cotton futures closed at 78.88 cents, down 1.35 cents since last Friday. 

Wheat 

Wheat net weekly sales reported by exporters were net sales of 4.0 million bushels for the 2023/24 marketing year and 0.5 million bushels for the 2024/25 marketing year. Exports for the same period were down 38% compared to last week at 5.7 million bushels. Wheat export sales were 19% 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 27%. Wheat cash prices at elevators and barge points ranged from $6.62 to $7.39. 

The Crop Progress report estimated winter wheat condition at 38% good-to-excellent and 29% poor-to-very poor; winter wheat headed at 94% compared to 89% last week, 90% last year, and a 5-year average of 93%; winter wheat harvested at 15% compared to 8% last week, 23% last year, and a 5-year average of 20%; spring wheat condition at 51% good-to-excellent and 12% poor-to-very poor; spring wheat emerged at 98% compared to 90% last week, 87% last year, and a 5-year average of 95%; and spring wheat headed at 10% compared to 2% last year and a 5-year average of 10%. In Tennessee, winter wheat condition was estimated at 80% good-to-excellent and 4% poor-to-very poor; winter wheat mature at 95% compared to 85% last week, 88% last year, and a 5-year average of 87%; and winter wheat harvested at 50% compared to 22% last week, 38% last year, and a 5-year average of 48%. July 2023 wheat futures closed at $7.33, up 45 cents since last Friday. July 2023 wheat futures traded between $6.76 and $7.47 this week. July wheat-to-corn price ratio was 1.16. Jul/Sep and Jul/Jul future spreads were 13 and 37 cents. September 2023 wheat futures closed at $7.46, up 45 cents since last Friday. July 2024 wheat futures closed at $7.70, up 34 cents since last Friday. Downside price protection could be obtained by purchasing a $7.80 July 2024 Put Option costing 87 cents establishing a $6.93 futures floor.  ∆

DR. AARON SMITH: University of Tennessee