There Is Still A Great Deal Of Uncertainty In Corn Markets

DR. AARON SMITH

KNOXVILLE, TENNESSEE

In the past nine months the December corn contract has traded between $4.46 and $5.27 3⁄4. Currently, a $4.60 December put option could be purchased for 20 cents and a $5.30 December call option sold for 20 cents. Executing these two trades would “fence in” a futures price between $4.60 and $5.30 for no premium and allow for basis to be fixed at a later time. There is still a great deal of uncertainty in corn markets due to weather concerns in the US and South America but protecting against downside price risk at the expense of forgoing some upside price potential is worth considering based on current market dynamics. 

November soybeans have moved mostly sideways the past two weeks trading between $11.95 and $12.30. Wet planting conditions across a large portion of the Corn Belt and Mississippi River Delta may result in producers switching from corn or cotton to soybeans which could increase supply. Buying an out of the money put option, to establish a price floor may be worth considering. An $11.80 November put option could be purchased for 42 cents, setting a $11.38 futures floor. The strike price of the put option could be lowered to reduce premium cost. 

The December cotton contract increased 2 cents on Wednesday and 1.34 cents on Thursday before falling slightly on Friday. The current price of 78 cents is unlikely to interest most producers as most will be looking at the low to mid 80 cent price range to start pricing the 2024 crop. Based on a lack of demand, producers may not see prices reach the mid 80’s until after harvest, if at all. The projected crop insurance price of 83 cents provides a base level of price protection near 70 cents, depending on buy up coverage, should prices fall dramatically. Most producers are likely to wait and see if markets can provide better pricing opportunities later this year. 

Wheat prices continue to show strength. The July contract broke above $7.00 for the first time since August 2023. Futures prices are up over a $1.50 since mid-April. The July wheat-to-corn price ratio is above 1.5, over the past two years the ratio has averaged 1.28, potentially providing some headwinds for additional price increases. 

Corn

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 70 under to 8 over, with an average of 21 under the July futures at elevators and barge points. Ethanol production for the week ending May 17 was 1.019 million barrels per day, up 19,000 from the previous week. Ethanol stocks were 24.212 million barrels, down 0.277 million barrels compared to last week. Corn net sales reported by exporters for May 10-16 were net sales of 35.9 million bushels for the 2023/24 marketing year and 12.0 million bushels for the 2024/25 marketing year. Exports for the same period were up 52% compared to last week at 57.0 million bushels. Corn export sales and commitments were 90% of the USDA estimated total annual exports for the 2023/24 marketing year (September 1 to August 31) compared to the previous 5-year aver- age of 97%. July 2024 corn futures closed at $4.64, up 12 cents since last Friday. Jul/Sep and July/Dec future spreads were 10 and 24 cents. For the week July 2024 corn futures traded between $4.52 and $4.67. 

The Crop Progress report estimated corn planted at 70% compared to 49% last week, 76% last year, and a 5-year average of 71%; and corn emerged at 40% compared to 23% last week, 46% last year, and a 5-year average of 39%. In Tennessee, corn planting was estimated at 83% compared to 73% last week, 92% last year, and a 5-year average of 87%; and corn emerged at 62% compared to 45% last week, 75% last year, and a 5-year average of 68%. September 2024 corn futures closed at $4.74, up 12 cents since last Friday. New crop cash prices ranged from $4.01 to $4.72 at elevators and barge points. December 2024 corn futures closed at $4.88, up 12 cents since last Friday. Downside price protection could be obtained by purchasing a $4.90 December 2024 Put Option costing 35 cents establishing a $4.55 futures floor. 

Soybeans

Across Tennessee the average soybean basis weakened or remained unchanged at West, Northwest, West-Central, North- Central, and Mississippi River elevators and barge points. Basis ranged from 38 under to even the July futures contract, with an average basis at the end of the week of 21 under. Soybean net weekly sales reported by exporters were net sales of 10.3 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 42% compared to last week at 9.5 million bushels – a marketing year low. Soybean export sales and commitments were 93% 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 99%. July 2024 soybean futures closed at $12.48, up 20 cents since last Friday. For the week July 2024 soybean futures traded between $12.24 and $12.58. July 2024 soybean-to-corn price ratio was 2.69 at the end of the week. Jul/Aug and Jul/Nov future spreads were -3 and -29 cents. August 2024 soybean futures closed at $12.45, up 20 cents since last Friday. 

The Crop Progress report estimated soybeans planted at 52% compared to 35% last week, 61% last year, and a 5-year average of 49%; and soybeans emerged at 26% compared to 16% last week, 31% last year, and a 5-year average of 21%. In Tennessee, soybean planting was estimated at 53% compared to 46% last week, 57% last year, and a 5-year average of 42%; and soybeans emerged at 34% compared to 25% last week, 32% last year, and a 5-year average of 22%. New crop cash soybean prices at elevators and barge points ranged from $11.73 to $12.04. November 2024 soybean futures closed at $12.19, up 16 cents since last Friday. Downside price protection could be achieved by purchasing a $12.20 November 2024 Put Option which would cost 62 cents and set an $11.58 futures floor. Nov/Dec soybean-to-corn price ratio was 2.50 at the end of the week. 

Cotton

North Delta upland cotton spot price quotes for May 23 were 77.97 cents/lb (41-4-34) and 79.97 cents/lb (31-3-35). Adjusted World Price (AWP) increased 0.62 cents to 60.08 cents. Cotton net weekly sales reported by exporters were 202,900 bales for the 2023/24 marketing year and 47,900 bales for the 2024/25 marketing year. Exports for the same period were down 15% compared to last week at 204,100 bales. Upland cotton export sales were 104% 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 110%. July 2024 cotton futures closed at 80.52 cents, up 4.63 cents since last Friday. For the week July 2024 cotton futures traded between 74.98 and 82.60 cents. Jul/Dec and Jul/Mar cotton futures spreads were -2.51 cents and -1 cents. 

The Crop Progress report estimated cotton planted at 44% compared to 33% last week, 42% last year, and a 5-year average of 44%. In Tennessee, cotton planting was estimated at 52% compared to 28% last week, 56% last year, and a 5-year average of 49% and cotton squaring at 1% compared to 1% last year and a 5-year average of 0%. December 2024 cotton futures closed at 78.01 cents, up 3.04 cents since last Friday. Downside price protection could be obtained by purchasing a 79 cent December 2024 Put Option costing 4.7 cents establishing a 74.3 cent futures floor. March 2025 cotton futures closed at 79.52 cents, up 2.94 cents since last Friday. 

Wheat 

Wheat net weekly sales reported by exporters were net sales of 0.7 million bushels for the 2023/24 marketing year and net sales of 8.3 million bushels for the 2024/25 marketing year. Exports for the same period were down 56% compared to last week at 7.2 million bushels. Wheat export sales were 97% 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 105%. Wheat cash prices at elevators and barge points ranged from $6.38 to $6.48. 

The Crop Progress report indicated winter wheat condition at 49% good-to-excellent and 18% poor-to-very poor; winter wheat headed at 69% compared to 57% last week, 58% last year, and a 5-year average of 57%; spring wheat planted at 79% compared to 61% last week, 57% last year, and a 5-year average of 65%; and spring wheat emerged at 43% compared to 25% last week, 27% last year, and a 5-year average of 33%. In Tennessee, winter wheat condition was estimated at 80% good-to- excellent and 5% poor-to-very poor; winter wheat headed at 93% compared to 89% last week, 96% last year, and a 5-year average of 96%; and winter wheat coloring at 45% compared to 6% last week, 27% last year and a 5-year average of 26%. July 2024 wheat futures closed at $6.97, up 46 cents since last Friday. July wheat-to-corn price ratio was 1.50. Jul/Sep and Jul/Jul future spreads were 20 and 47 cents. July 2024 wheat futures traded between $6.54 and $7.16 this week. Downside price protection could be obtained by purchasing a $7.00 July 2024 Put Option costing 28 cents establishing a $6.72 futures floor. New crop wheat cash prices at elevators and barge points ranged from $6.48 to $6.79. September 2024 wheat futures closed at $7.17, up 26 cents since last Friday. July 2025 wheat futures closed at $7.44, up 26 cents since last Friday.  ∆

DR. AARON SMITH: University of Kentucky