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All Three Commodities Have Larger Projected Prices Than In 2016
DR. AARON SMITH
KNOXVILLE, TENN.
This week we entered the critical price discovery period for crop insurance for corn, soybeans, and cotton in Tennessee. The projected (spring) price will be determined from February 1 to 28 using the harvest futures contract for each commodity. As of Friday, February 3, the 2017 projected price was $3.94/bu for corn, $10.13/bu for soybeans and $0.73/lb for cotton.
Prices could change substantially from now until the end of February, however, currently, all three commodities would have higher projected prices than last year. For 2016, corn had a projected price of $3.86/bu (harvest price $3.49/bu); soybeans had a projected price of $8.85/bu (harvest price $9.75/bu); and cotton had a projected price of $0.60/lb (harvest price $0.69/lb).
In 2016, cotton, corn, and soybean prices decreased through the price discovery period. Cotton prices decreased from a high of $0.63/lb on February 3 to 0.56/lb on February 29 (down $0.07). Corn prices decreased from a high of $3.94 on February 2 to a low of $3.76 on February 29 (down $0.18). Soybean prices decreased from a high of $8.97 on February 2 to a low of $8.74 on February 29 (down $0.23).
The final projected price will be used to determine the revenue guarantee for producers purchasing revenue protection (RP, RP-HPE) crop insurance prior to planting this year’s crop. For example, if the final projected price is $10.13/bu and a producer has an APH of 40 bu/acre and buys crop insurance coverage at 80% they would have a revenue guarantee of $324.16 ($10.13 x 40 x 0.80). If the actual revenue from the crop fell below $324.16 the producer would receive a payment from crop insurance for the difference. This is a simplified example used to illustrate the importance of crop insurance as a risk management tool for row crop producers.
Corn
March 2017 corn futures closed at $3.65 up 3 cents since last Friday. For the week, March 2017 corn futures traded between $3.55 and $3.69. Across Tennessee, average basis (cash price-nearby futures price) strengthened or remained unchanged at Memphis and Lower-middle Tennessee and weakened at Northwest Barge Points, Upper-middle, and Northwest Tennessee. Overall, basis for the week ranged from 6 under to 40 over the March futures contract with an average of 13 over at the end of the week. Corn net sales reported by exporters from January 20-26 were above expectations with net sales of 45 million bushels for the 2016/17 marketing year and 0.6 million bushels for the 2017/18 marketing year. Exports for the same time period were down from last week at 30.1 million bushels. Corn export sales and commitments were 71 percent of the USDA estimated total annual exports for the 2016/17 marketing year (September 1 to August 31) compared to a 5-year average of 66 percent. Ethanol production for the week ending January 27 was 1.061 million barrels per day up 10,000 from last week. Ethanol stocks were 21.87 million barrels, up 142,000 barrels. Mar/May and Mar/Dec future spreads were 7 and 27 cents, respectively. May 2017 corn futures closed at $3.72 up 3 cents since last Friday.
In Tennessee, September 2017 cash forward contracts averaged $3.77 with a range of $3.59 to $4.06. December 2017 corn futures closed at $3.92 up 3 cents since last Friday. Downside price protection could be obtained by purchasing a $4.00 December 2017 Put Option costing 35 cents establishing a $3.65 futures floor.
Soybeans
March 2017 soybean futures closed at $10.27 down 22 cents since last Friday. For the week, March 2017 soybean futures traded between $10.17 and $10.44. Average soybean basis strengthened or remained unchanged at Memphis, Northwest Barge Points, and Northwest Tennessee and weakened at Upper-middle and Lower-middle Tennessee. Basis ranged from 38 under to 30 over the March futures contract at elevators and barge points. Average basis at the end of the week was 9 under the March futures contract. Net sales reported by exporters were above expectations with net sales of 22.9 million bushels for the 2016/17 marketing year and 12.9 million bushels for the 2017/18 marketing year. Exports for the same period were up from last week at 46.0 million bushels. Soybean export sales and commitments were 90 percent of the USDA estimated total annual exports for the 2016/17 marketing year (September 1 to August 31), compared to a 5-year average of 86 percent. March soybean-to-corn futures price ratio was 2.81 at the end of the week. Mar/May and Mar/Nov future spreads were 10 cents and -18 cents, respectively. May 2017 soybean futures closed at $10.37 down 21 cents since last Friday.
In Tennessee, October / November 2017 cash contracts average $10.05 with a range of $9.81 to $10.30. November/December 2017 soybean-to-corn price ratio was 2.57 at the end of the week. November 2017 soybean futures closed at $10.09 down 16 cents since last Friday. Downside price protection could be achieved by purchasing a $10.20 November 2017 Put Option which would cost 69 cents and set a $9.51 futures floor.
Cotton
March 2017 cotton futures closed at 76.41 up 1.56 cents since last Friday. For the week, March 2017 cotton futures traded between 74.06 and 77.4 cents. Delta upland cotton spot price quotes for February 2 were 76.16 cents/lb (41-4-34) and 77.41 cents/lb (31-3-35). Adjusted world price (AWP) increased 1.3 cents to 65.38 cents per pound. Net sales reported by exporters were down from last week with net sales of 328,700 bales for the 2016/17 marketing year and 89,000 bales for the 2017/18 marketing year. Exports for the same period were up from last week at 354,400 bales. Upland cotton export sales were 84 percent of the USDA estimated total annual exports for the 2016/17 marketing year (August 1 to July 31), compared to a 5-year average of 84 percent. May 2017 cotton futures closed at 77.07 up 1.68 cents since last Friday. Mar/May and Mar/Dec cotton futures spreads were 0.66 cents and -2.42 cents, respectively.
December 2017 cotton futures closed at 73.99 up 2.2 cents since last Friday. Downside price protection could be obtained by purchasing a 74 cent December 2017 Put Option costing 4.89 cents establishing a 69.11 cent futures floor.
Wheat
March 2017 wheat futures closed at $4.30 up 10 cents since last Friday. March 2017 wheat futures traded between $4.12 and $4.37 this week. March wheat-to-corn price ratio was 1.18.Wheat net sales reported by exporters were above expectations with net sales of 16.6 million bushels for the 2016/17 marketing year and 2.2 million bushels for the 2017/18 marketing year. Exports for the week were up from last week at 11.9 million bushels. Wheat export sales were 87 percent of the USDA estimated total annual exports for the 2016/17 marketing year (June 1 to May 31), compared to a 5-year average of 84 percent. In Memphis, old crop cash wheat ranged from $4.22 to $4.43. Mar/May and Mar/Jul future spreads were 13 cents and 26 cents, respectively. May 2017 wheat futures closed at $4.43 up 9 cents since last Friday. May 2017 wheat-to-corn price ratio was 1.19.
In Tennessee, June/July 2017 cash wheat ranged from $4.17 to $4.85. July 2017 wheat futures closed at $4.56 up 7 cents since last Friday. Downside price protection could be obtained by purchasing a $4.60 July 2017 Put Option costing 29 cents establishing a $4.31 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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