The Futures Market Declines Amplify Recent Declines In Basis

DR. AARON SMITH

KNOXVILLE, TENNESSEE

On Friday September 29, the USDA released the September Grain Stocks report. The report estimated the amount of corn, soybeans, and wheat held in storage as of September 1 (the start of the soybean and corn marketing year). Corn stocks were estimated at 1.36 billion bushels, down 1% compared to last year; soybean stocks were 268 million bushels, down 2% compared to last year; and all wheat stocks were 1.78 billion bushels, up less than 1% compared to last year. Markets reacted negatively to the report release. December corn, before the report’s release, was near $4.89/bu and closed the day at $4.76/bu. November soybeans declined from $12.95/bu to $12.75/bu. December wheat dropped from $5.75/bu to $5.40/bu. 

The futures market declines amplify recent declines in basis, due primarily to low water levels on the Mississippi River. At the end of the week average corn and soybean basis at West Tennessee elevators and barge points were 89 and 100 cents under the December and November futures contracts. By comparison, on August 15th, corn and soybean basis averaged 23 under and 62 over at West Tennessee elevators and barge points. Producers need to evaluate all storage options (bins, storage bags, and commercial storage) for unpriced production to avoid weak basis offerings. 

Cotton futures prices have trended up since the end of June. However, prices have yet to be able to breach the 90-cent mark for the December futures contract. The recent trading range has been consistently between 85 and 90 cents. The past three attempts at 90 cents have been followed by a price decline below 85 cents before settling back to the established range. For cotton to finally breakout and maintain 90-cent price levels export demand needs to improve. This week’s sales were just over 55,000 bales. Weekly average sales will need to be north of 240,000 bales per week to meet the USDA projected exports. 

Corn

Ethanol production for the week ending September 22 was 1.009 million barrels per day, up 29,000 barrels from the previous week. Ethanol stocks were 22.048 million barrels, up 367,000 barrels compared to last week. Corn net sales reported by exporters for September 15-21 were net sales of 33.1 million bushels for the 2023/24 marketing year and 0.6 million bushels for the 2024/25 marketing year. Exports for the same period were up 21% compared to last week at 28.7 million bushels. Corn export sales and commitments were 24% of the USDA estimated total annual exports for the 2023/24 marketing year (September 1 to August 31) compared to the previous 5-year average of 35%. Across Tennessee, average corn basis (cash price-nearby futures price) weakened or remained unchanged at West, Northwest, North-Central, West-Central, and Mississippi River elevators and barge points. Overall, basis for the week ranged from 105 to 42 under, with an average of 89 under the December futures at elevators and barge points. 

The Crop Progress report estimated corn condition at 53% good-to-excellent and 18% poor-to-very poor; corn dented at 95% compared to 90% last week, 91% last year, and a 5-year average of 93%; corn mature at 70% compared to 54% last week, 55% last year, and a 5-year average of 60%; and corn harvested at 15% compared to 9% last week, 11% last year, and a 5-year aver- age of 13%. In Tennessee, corn condition was estimated at 75% good-to-excellent and 7% poor-to-very poor; corn dented at 98% compared to 97% last week, 100% last year, and a 5-year average of 99%; corn mature at 91% compared to 80% last week, 87% last year, and a 5-year average of 89%; and corn harvested at 46% compared to 26% last week, 40% last year, and a 5-year average of 47%. New crop cash prices ranged from $3.44 to $4.57 at elevators and barge points. December 2023 corn futures closed at $4.76, down 1 cent since last Friday. For the week December 2023 corn futures traded between $4.73 and $4.90. Dec/Mar and Dec/May future spreads were 15 and 24 cents. Downside price protection could be obtained by purchasing a $4.80 December 2023 Put Option costing 15 cents establishing a $4.65 futures floor. March 2024 corn futures closed at $4.91, down 1 cent since last Friday. May 2024 corn futures closed at $5.00, down 1 cent since last Friday. 

Soybeans

Across Tennessee average soybean basis weakened or remained unchanged at Northwest, North-Central, West-Central, West, and Mississippi River elevators and barge points. Basis ranged from 132 to 52 under the November futures contract, with an average basis at the end of the week of 100 under. Soybean net weekly sales reported by exporters were net sales of 24.7 mil- lion bushels for the 2023/24 marketing year. Exports for the same period were down less than 1% compared to last week at 20.0 million bushels. Soybean export sales and commitments were 36% of the USDA estimated total annual exports for the 2023/24 marketing year (September 1 to August 31), compared to the previous 5-year average of 46%. 

The Crop Progress report estimated soybean condition at 50% good-to-excellent and 18% poor-to-very poor; soybeans dropping leaves at 73% compared to 54% last week, 60% last year, and a 5-year average of 62%; and soybeans harvested at 12% compared to 5% last week, 7% last year, and a 5-year average of 11%. In Tennessee, the Crop Progress report estimated soybean condition at 74% good-to-excellent and 7% poor-to-very poor; soybeans dropping leaves at 62% compared to 46% last week, 53% last year, and a 5-year average of 53%; and soybeans harvested at 17% compared to 11% last week, 12% last year, and a 5-year average of 13%. November 2023 soybean futures closed at $12.75, down 21 cents since last Friday. For the week, November 2023 soybean futures traded between $12.72 and $13.17. New crop cash soybean prices at elevators and barge points ranged from $11.56 to $12.69. Downside price protection could be achieved by purchasing a $12.80 November 2023 Put Option which would cost 25 cents and set a $12.55 futures floor. Nov/Dec 2023 soybean-to-corn price ratio was 2.68 at the end of the week. Nov/Jan and Nov/Mar future spreads were 19 and 35 cents. March soybean-to-corn price ratio was 2.67 at the end of the week. January 2024 soybean futures closed at $12.94, down 19 cents since last Friday. March 2024 soybean futures closed at $13.10, down 14 cents since last Friday. 

Cotton

North Delta upland cotton spot price quotes for September 28 were 86.46 cents/lb (41-4-34) and 88.71 cents/lb (31-3-35). Adjusted world price (AWP) was down 0.02 cents at 72.27 cents. Cotton net weekly sales reported by exporters were 55,300 bales for the 2023/24 marketing year and 11,000 for the 2024/25 marketing year. Exports for the same period were up 6% compared to last week at 159,400 bales. Upland cotton export sales were 48% of the USDA estimated total annual exports for the 2023/24 marketing year (August 1 to July 31), compared to the previous 5-year average of 61%. 

The Crop Progress report estimated cotton condition at 30% good-to-excellent and 42% poor-to-very poor; cotton bolls opening at 65% compared to 55% last week, 66% last year, and a 5-year average of 62%; and cotton harvested at 13% compared to 9% last week, 14% last year, and a 5-year average of 13%. In Tennessee, the Crop Progress report estimated cotton condition at 75% good-to-excellent and 11% poor-to-very poor; cotton bolls opening at 65% compared to 42% last week, 55% last year, and a 5-year average of 63%; and cotton harvested at 3% compared to 2% last week, 2% last year, and a 5-year average of 4%. December 2023 cotton futures closed at 87.15 cents, up 1.24 cents since last Friday. For the week, December 2023 cotton futures traded between 85.8 and 89.89 cents. Downside price protection could be obtained by purchasing an 88 cent December 2023 

Put Option costing 3 cents establishing an 85 cent futures floor. March 2024 cotton futures closed at 87.92 cents, up 1.14 cents since last Friday. May 2023 cotton futures closed at 88.5 cents, up 1.17 cents since last Friday. Dec/Mar and Dec/May cotton futures spreads were 0.77 cents and 1.35 cents. 

Wheat 

Wheat net weekly sales reported by exporters were net sales of 20.0 million bushels for the 2023/24 marketing year. Exports for the same period were up 98% compared to last week at 21.5 million bushels. Wheat export sales were 48% 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 54%. Wheat cash prices at elevators and barge points ranged from $4.93 to $6.24. 

The Crop Progress report estimated winter wheat planted at 26% compared to 15% last week, 30% last year, and a 5-year average of 29%; winter wheat emerged at 7% compared to 8% last year and a 5-year average of 6%; and spring wheat harvested at 96% compared to 93% last week, 97% last year, and a 5-year average of 98%. In Tennessee, winter wheat planted was estimated at 4% compared to 1% last week, 9% last year, and a 5-year average of 8%; and winter wheat emerged at 0% compared to 3% last year and a 5-year average of 2%. December 2023 wheat futures closed at $5.41, down 38 cents since last Friday. December 2023 wheat futures traded between $5.40 and $5.96 this week. December wheat-to-corn price ratio was 1.14. Dec/ Mar and Dec/Jul future spreads were 32 and 71 cents. March 2024 wheat futures closed at $5.73, down 33 cents since last Friday. July 2024 wheat futures closed at $6.12, down 21 cents since last Friday. Downside price protection could be obtained by purchasing a $6.20 July 2024 Put Option costing 57 cents establishing a $5.63 futures floor. New crop wheat cash prices at elevators and barge points ranged from $5.66 to $6.20.  ∆

DR. AARON SMITH: University of Kentucky