USDA Estimates 32 Percent Of Corn Production In Drought

DR. AARON SMITH

KNOXVILLE, TENNESSEE

May corn futures have increased from the contract low of $4.08 3⁄4 on February 26 to $4.39 1⁄4 on March 8
trade between $4.10 and $4.60 until more is known about planting conditions and acreage intentions in the US. Currently, the USDA estimates 32% of corn production in drought, compared to 33% last year. The Northwestern portion of the Corn Belt is a region to watch for early season dryness. The current epicenter of dry conditions is Iowa. The March 4th drought monitor estimated 99% of Iowa in some form of drought with 56% in severe drought or worse. 

 This week went a long way to help soybean prices establish an old crop bottom. The May contract obtained a contract low of $11.28 1⁄2 on February 29 and closed this week at $11.84. The March WASDE report pulled back production in Brazil, increased exports, and reduced projected global carryover stocks. While the underlying supply and demand situation is far from bullish the revisions provided the support needed to hopefully establish a bottom to this market. Prices will likely trade mostly below $12.50 until more is known about U.S. planted acreage and planting conditions. 

Nearby cotton futures prices continued to oscillate wildly from day-to-day. This week the May contract had daily changes of - 0.99, -0.34, +1.04, +4.0, and -4.0. There have been four +/- 4 cent daily price moves in the last nine trading days. Prices have been influenced by tighter domestic production and stocks, moderate increases in demand, and speculative money movements. Nearby price volatility is likely to persist, while new crop prices are likely to continue to trade between 81 and 85 cents. The March WASDE report was released on Friday details of the report for corn, soybeans, cotton, and wheat can be accessed at:https://arec.tennessee.edu/extension/tennessee-market-highlights/monthly-crop-comments/. Overall, the report provided only minor changes to the global supply and demand picture. Markets will now focus attention on U.S. planted acreage projections and weather forecasts. 

Corn

Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at West, West- Central, and Mississippi River elevators and barge points and weakened at Northwest and North-Central elevators and barge points. Overall, basis for the week ranged from 54 under to 22 over, with an average of 7 under the May futures at elevators and barge points. Ethanol production for the week ending March 1 was 1.057 million barrels per day, down 21,000 from the previous week. Ethanol stocks were 26.051 million barrels, up 0.029 million barrels compared to last week. Corn net sales reported by exporters for February 23-29 were net sales of 43.7 million bushels for the 2023/24 marketing year. Exports for the same period were down 5% compared to last week at 45.6 million bushels. Corn export sales and commitments were 74% 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 80%. May 2024 corn futures closed at $4.39, up 15 cents since last Friday. For the week May 2024 corn futures traded between $4.23 and $4.40. May/Jul and May/Dec future spreads were 12 and 33 cents. July 2024 corn futures closed at $4.51, up 15 cents since last Friday. 

New crop cash prices ranged from $3.79 to $4.51 at elevators and barge points. December 2024 corn futures closed at $4.72, up 13 cents since last Friday. Downside price protection could be obtained by purchasing a $4.80 December 2024 Put Option costing 41 cents establishing a $4.39 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 33 under to 18 over the May futures contract, with an average basis at the end of the week of 3 under. Soybean net weekly sales reported by exporters were net sales of 22.5 million bushels for the 2023/24 marketing year and 2.4 million bushels for the 2024/25 marketing year. Exports for the same period were up 29% compared to last week at 52.1 million bushels. Soybean export sales and commitments were 84% 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 90%. May 2024 soybean futures closed at $11.84, up 33 cents since last Friday. For the week May 2024 soybean futures traded between $11.40 and $11.85. May 2024 soybean-to-corn price ratio was 2.70 at the end of the week. May/Jul and May/Nov future spreads were 11 and -11 cents. July 2024 soybean futures closed at $11.95, up 34 cents since last Friday. 

New crop cash soybean prices at elevators and barge points ranged from $11.09 to $11.34. November 2024 soybean futures closed at $11.73, up 34 cents since last Friday. Downside price protection could be achieved by purchasing an $11.80 November 2024 Put Option which would cost 68 cents and set a $11.12 futures floor. Nov/Dec soybean-to-corn price ratio was 2.49 at the end of the week. 

Cotton

North Delta upland cotton spot price quotes for March 7 were 96.53 cents/lb (41-4-34) and 98.53 cents/lb (31-3-35). Adjusted World Price (AWP) decreased 0.59 cents to 76.88 cents. Cotton net weekly sales reported by exporters were 52,000 bales for the 2023/24 marketing year and 15,100 bales for the 2024/25 marketing year. Exports for the same period were up 24% compared to last week at 330,800 bales. Upland cotton export sales were 91% 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 95%. May 2024 cotton futures closed at 95.28 cents, down 0.29 cents since last Friday. For the week, May 2024 cotton futures traded between 92.89 and 101.5 cents. May/Jul and May/Dec cotton futures spreads were -1.36 cents and -12.29 cents. July 2024 cotton futures closed at 93.92 cents, up 0.15 cents since last Friday. 

December 2024 cotton futures closed at 82.99 cents, up 0.04 cents since last Friday. Downside price protection could be obtained by purchasing an 83 cent December 2024 Put Option costing 5.41 cents establishing a 77.59 cent futures floor. 

Wheat

Wheat net weekly sales reported by exporters were net sales of 10.0 million bushels for the 2023/24 marketing year and 2.4 million bushels for the 2024/25 marketing year. Exports for the same period were down 32% compared to last week at 13.5 million bushels. Wheat export sales were 94% 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 96%. Wheat cash prices at elevators and barge points ranged from $5.30 to $5.89. May 2024 wheat futures closed at $5.37, down 20 cents since last Friday. May 2024 wheat futures traded between $5.26 and $5.68 this week. May wheat-to-corn price ratio was 1.22. May/Jul and May/Sep future spreads were 13 and 27 cents. 

July 2024 wheat futures closed at $5.50, down 11 cents since last Friday. Downside price protection could be obtained by purchasing a $5.60 July 2024 Put Option costing 42 cents establishing a $5.18 futures floor. New crop wheat cash prices at elevators and barge points ranged from $5.10 to $5.59. September 2024 wheat futures closed at $5.64, down 5 cents since last Friday.  ∆

DR. AARON SMITH: University of Tennessee