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Now Is Time To Evaluate Pre-Harvest Premiums
DR. AARON SMITH
KNOXVILLE, TENN.
July is rapidly coming to a close. As such, now is a good time to evaluate your current pricing levels and examine harvest and post-harvest marketing alternatives. With harvest in some areas of the state only a few weeks away it is prudent to evaluate if any “early” harvest price premiums can be obtained. Corn producers in Tennessee may be able to receive a premium now before the US market is flooded, as corn harvest moves into the Corn Belt. Additionally, opportunities are available in the futures market as there is still a great deal of production uncertainty, in Northern Corn Belt states, priced into the market. By now the range of yield outcomes for Tennessee corn fields has narrowed substantially, so securing a price on the last half-to-third of unpriced production can be accomplished without incurring substantial production risk.
On-farm storage capacity and/or commercial storage options should be examined at this time. Prioritize which crops will be stored and which will be marketed – if sufficient storage capacity is not available for all of the farm’s production. The ability to store the crop can assist in 1) getting the crop out of the field in a timely manner and 2) extending the marketing window.
Lastly, evaluate opportunities in the futures and options market that can be utilized without ownership of the physical commodity. Call options can be a useful tool to enhance the average price received for the commodity with limited risk/cost. Futures and options are not for everyone – so be sure to evaluate and understand all risks before entering into advanced marketing strategies.
Corn
September 2017 corn futures closed at $3.74 down 5 cents since last Friday. For the week, September 2017 corn futures traded between $3.66 and $3.83. Across Tennessee, average basis (cash price-nearby futures price) weakened or remained unchanged at Memphis, Northwest Barge Points, Northwest, Upper-Middle, and Lower-middle Tennessee. Overall, basis for the week ranged from 26 under to 30 over the September futures contract with an average of 9 under the September futures contract at the end of the week. Corn net sales reported by exporters from July 14-20 were within expectations with net sales of 3.6 million bushels for the 2016/17 marketing year and 19.2 million bushels for the 2017/18 marketing year. Exports for the same time period were up from last week at 35.2 million bushels. Corn export sales and commitments were 100 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 103 percent. Ethanol production for the week ending July 21 was 1.012 million barrels per day down 14,000 from last week. Ethanol stocks were 21.529 million barrels, down 608,000 barrels. Sep/Dec and Sep/Mar future spreads were 14 and 25 cents, respectively.
Nationally, the Crop Progress report estimated corn silking at 67 percent compared to 40 percent last week, 76 percent last year, and a 5-year average of 69 percent; corn dough or beyond at 8 percent compared to 12 percent last year and a 5-year average of 13 percent; and corn condition at 62 percent good-to-excellent and 12 percent poor-to-very poor. In Tennessee, the Crop Progress report estimated corn condition at 86 percent good-to-excellent 3 percent poor-to-very poor; corn silking at 96 percent compared to 90 percent last week, 94 percent last year, and a 5-year average of 92 percent; and corn dough or beyond at 56 percent compared to 31 percent last week, 56 percent last year, and a 5-year average of 53 percent. In Tennessee, September 2017 cash forward contracts averaged $3.59 with a range of $3.48 to $3.87. December 2017 corn futures closed at $3.88 down 5 cents since last Friday. Downside price protection could be obtained by purchasing a $3.90 December 2017 Put Option costing 18 cents establishing a $3.72 futures floor. March 2018 corn futures closed at $3.99 down 5 cents since last Friday.
Soybeans
August 2017 soybean futures closed at $10.00 down 9 cents since last Friday. For the week, August 2017 soybean futures traded between $9.73 and $10.22. Average soybean basis strengthened or remained unchanged at Memphis, Northwest Barge Points, Lower-middle, Upper-middle, and Northwest Tennessee. Basis ranged from 42 under to 22 over the August futures contract at elevators and barge points. Average basis at the end of the week was 7 under the August futures contract. Net sales reported by ex-porters were within expectations with net sales of 11.1 million bushels for the 2016/17 marketing year and 19.5 million bushels for the 2017/18 marketing year. Exports for the same period were up from last week at 21.1 million bushels. Soybean export sales and commitments were 106 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 103 percent. September soybean-to-corn futures price ratio was 2.69 at the end of the week. Aug/Sep and Aug/Nov future spreads were 6 cents and 13 cents, respectively. September 2017 soybean futures closed at $10.06 down 8 cents since last Friday.
Nationally, the Crop Progress report estimated soybeans blooming at 69 percent compared to 52 percent last week, 74 percent last year, and a 5-year average of 67 percent; soybeans setting pods at 29 percent compared to 16 percent last week, 33 percent last year, and a 5-year average of 27 percent; and soybean condition at 57 percent good-to-excellent and 14 percent poor-to-very poor. In Tennessee, the Crop Progress report estimated soybean condition at 79 percent good-to-excellent and 7 percent poor-to-very poor; soybeans blooming at 76 percent compared to 57 percent last week, 70 percent last year, and a 5-year average of 57 percent; and soybeans setting pods at 37 percent compared to 22 percent last week, 38 percent last year, and a 5-year average of 30 percent. In Tennessee, October/November 2017 soybean cash contracts average $9.90 with a range of $9.53 to $10.25. Novem-ber/December 2017 soybean-to-corn price ratio was 2.61 at the end of the week. November 2017 soybean futures closed at $10.13 down 9 cents since last Friday. Downside price protection could be achieved by purchasing a $10.20 November 2017 Put Option which would cost 44 cents and set a $9.76 futures floor.
Cotton
Delta upland cotton spot price quotes for July 28 were 68.72 cents/lb (41-4-34) and 69.97 cents/lb (31-3-35). Adjusted world price (AWP) increased 1.39 cents to 66.29 cents per pound. Net sales reported by exporters were up from last week with net sales of 28,300 bales for the 2016/17 marketing year and 232,600 bales for the 2017/18 marketing year. Exports for the same period were up from last week at 326,800 bales. Upland cotton export sales were 109 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 107 percent. October 2017 cotton futures closed at 70.22 up 1.08 cents since last Friday. Oct/Dec and Dec/Mar cotton futures spreads were -1.42 cents and -0.57 cents, respectively.
Nationally, the Crop Progress report estimated cotton squaring at 77 percent compared to 70 percent last week, 84 percent last year, and a 5-year average of 84 percent; cotton setting bolls at 36 percent compared to 26 percent last week, 43 percent last year, and a 5-year average 41 percent; and cotton condition at 55 percent good-to-excellent and 12 percent poor-to-very poor. In Tennessee, cotton condition was estimated at 86 percent good-to-excellent and 8 percent poor-to-very poor; cotton squaring at 91 percent compared to 83 percent last week, 91 percent last year, and a 5-year average of 85 percent; and cotton setting bolls at 47 percent compared to 29 percent last week, 52 percent last year, and a 5-year average of 41 percent. December 2017 cotton futures closed at 68.8 cents up 0.38 cents since last Friday. For the week, December 2017 cotton futures traded between 67.76 and 69.72 cents. Downside price protection could be obtained by purchasing a 69 cent December 2017 Put Option costing 2.85 cents establishing a 66.15 cent futures floor. March 2018 cotton futures closed at 68.23 up 0.12 cents since last Friday.
Wheat
In Tennessee, cash wheat ranged from $4.49 to $4.95. Wheat net sales reported by exporters were within expectations with net sales of 18.3 million bushels for the 2017/18 marketing year. Exports for the week were down from last week at 17.5 million bushels. Wheat export sales were 38 percent of the USDA estimated total annual exports for the 2017/18 marketing year (June 1 to May 31), compared to a 5-year average of 38 percent. Sep/Dec and Sep/Jul future spreads were 25 cents and 64 cents, respectively.
September 2017 wheat futures closed at $4.81 down 18 cents since last Friday. September 2017 wheat futures traded between $4.73 and $4.96 this week. September wheat-to-corn price ratio was 1.29. Nationally, the Crop Progress report estimated winter wheat harvested at 84 percent compared to 75 percent last week, 82 percent last year, and a 5-year average of 80 percent; spring wheat headed at 96 percent compared to 91 percent last week, 99 percent last year, and a 5-year average of 94 percent; and spring wheat condition at 34 percent good-to-excellent and 41 percent poor-to-very poor. December 2017 wheat futures closed at $5.06 down 16 cents from last Friday. In Memphis, July 2018 cash forward contracts ranged from $5.41 to $5.45 for the week. July 2018 wheat futures closed at $5.45 down 13 cents since last Fri-day. Downside price protection could be obtained by purchasing a $5.50 July 2018 Put Option costing 45 cents establishing a $5.05 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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