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Current Market Rally Presented Profitable Pricing Opportunities For Corn And Soybean Producers During This Year’s Harvest
DR. AARON SMITH
KNOXVILLE, TENN.
The current market rally has presented profitable pricing opportunities for corn and soybean producers during this year’s harvest and for crop to be held in storage into the winter and spring. This was a very welcome development in an extremely challenging marketing year. However, producers may also want to take a glance at price offerings for the 2021 harvest. December 2021 corn is close to $4.00 and November 2021 soybeans are above $10.00. While it is still very early to start marketing the 2021 crop, these are price levels (when factoring in basis) that can provide many producers profitable opportunities with trend line yields. Pricing 10-15 percent of anticipated 2021 production may be a good strategy for those that use an incremental pricing strategy. Incremental pricing helps producers by mitigate the risk of a declining price environment. This does however also reduce the number of bushels producers can sell during an increasing price environment. To effectively implement an incremental pricing strategy, producers must estimate the cost of production and establish reasonable yield estimates. The only effective way to accomplish this is to estimate the numbers for your farm.
With July 2021 wheat futures above $6.00, now is a great time for producers to start pricing some of their anticipated 2021 production. Producers need to estimate their cost of production so they can determine under what yield and price scenarios they are making or losing money. For example, if your estimated cost of production is $425/acre, a futures price of $6.00 plus $0.20 basis would provide a 68 bu/acre break even yield. Pricing 20-40 percent of estimated production at current prices warrants some consideration. However, producers are cautioned to avoid scenarios where price risk is exchanged for production risk. Using tools like options or minimum price contracts can limit downside risk and allow producers to participate in price increases, without incurring additional production risk.
Corn
Ethanol production for the week ending October 30 was 0.961 million barrels per day, up 20,000 barrels from the previous week. Ethanol stocks were 19.675 million barrels, up 0.074 million barrels compared to last week. Corn net sales reported by exporters for October 23-29 were up compared to last week with net sales of 102.8 million bushels for the 2020/21 marketing year and 21.3 million bushels for the 2021/22 marketing year. Exports for the same time period were down 1 percent from last week at 28.7 million bushels. Corn export sales and commitments were 56 percent of the USDA estimated total exports for the 2020/21 marketing year (September 1 to August 31) compared to the previous 5-year average of 35 percent.
Nationally the Crop Progress report estimated corn harvested at 82 percent compared to 72 percent last week, 49 percent last year, and a 5-year average of 69 percent. In Tennessee, the Crop Progress report estimated corn harvested at 94 percent compared to 91 percent last week, 99 percent last year, and a 5-year average of 98 percent. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Northwest and North-Central and weakened at Mississippi River, West-Central, and West elevators and barge point. Overall, basis for the week ranged from 20 under to 30 over, with an average of 4 over the December futures. December 2020 corn futures closed at $4.06, up 8 cents since last Friday. For the week, December 2020 corn futures traded between $3.93 and $4.17. Dec/Mar and Dec/Dec future spreads were 7 and -11 cents. March 2021 corn futures closed at $4.13, up 10 cents since last Friday. December 2021 corn futures closed at $3.95, down 8 cents since last Friday. Downside price protection could be obtained by purchasing a $4.00 December 2021 Put Option costing 35 cents establishing a $3.65 futures floor.
Soybeans
Net sales reported by exporters were down compared to last week with net sales of 56.2 million bushels for the 2020/21 marketing year. Exports for the same period were down 6 percent compared to last week at 92.9 million bushels. Soybean export sales and commitments were 81 percent of the USDA estimated total annual exports for the 2020/21 marketing year (September 1 to August 31), compared to the previous 5-year average of 53 percent.
Nationally the Crop Progress report estimated soybeans harvested at 87 percent compared to 83 percent last week, 71 percent last year, and a 5-year average of 83 percent. In Tennessee, soybeans harvested at 58 percent compared to 51 percent last week, 74 percent last year, and a 5-year average of 73 percent. Across Tennessee, average soybean basis weakened at Mississippi River, West, West-Central, North-Central, and Northwest elevators and barge points. Basis ranged from 7 under to 34 over the January futures contract. Average basis at the end of the week was 10 over the January futures contract. January 2021 soybean futures closed at $11.01, up 45 cents since last Friday. For the week, January 2021 soybean futures traded between $10.45 and $11.12. Jan/Mar and Jan/Nov future spreads were -2 and -95 cents. March 2021 soybean futures closed at $10.99, up 51 cents since last Friday. November 2021 soybean futures closed at $10.06, up 35 cents since last Friday. Downside price protection could be achieved by purchasing a $10.20 November 2021 Put Option which would cost 75 cents and set a $9.45 futures floor. Nov/Dec 2021 soybean-to-corn price ratio was 2.55 at the end of the week.
Cotton
Net sales reported by exporters were down compared to last week with net sales of 171,300 bales for the 2020/21 marketing year and 55,700 bales for the 2021/22 marketing year. Exports for the same time period were up 18 percent compared to last week at 270,000 bales. Upland cotton export sales were 65 percent of the USDA estimated total annual exports for the 2020/21 marketing year (August 1 to July 31), compared to the previous 5-year average of 57 percent. Delta upland cotton spot price quotes for November 5 were 67.32 cents/lb (41-4-34) and 69.57 cents/lb (31-3-35). Adjusted World Price (AWP) decreased 1.36 cents to 56.01 cents.
Nationally, the Crop Progress report estimated cotton condition at 37 percent good-to-excellent and 34 percent poor-to-very poor; and cotton harvested at 52 percent compared to 42 percent last week, 51 percent last year, and a 5-year average of 49 percent. In Tennessee, cotton condition was estimated at 63 percent good-to-excellent and 17 percent poor-to-very poor; cotton bolls opening at 100 percent compared to 98 percent last week, 100 percent last year, and a 5-year average of 100 percent; and cotton harvested at 52 percent compared to 46 percent last week, 65 percent last year, and a 5-year average 69 percent. December 2020 cotton futures closed at 68.62, down 0.3 cents since last Friday. For the week, December 2020 cotton futures traded between 68.06 and 70.94 cents. Dec/Mar and Dec/Dec cotton futures spreads were 1.53 cents and 0.05 cents. March 2021 cotton futures closed at 70.15 cents, up 0.37 cents since last Friday. December 2021 cotton futures closed at 68.67 cents, up 0.26 cents since last Friday. Downside price protection could be obtained by purchasing a 70 cent December 2021 Put Option costing 5.99 cents establishing a 64.01 cent futures floor.
Wheat
Wheat net sales reported by exporters were down compared to last week with net sales of 21.9 million bushels for the 2020/21 marketing year. Exports for the same time period were down 28 percent from last week at 11.7 million bushels. Wheat export sales were 64 percent of the USDA estimated total annual exports for the 2020/21 marketing year (June 1 to May 31), compared to the previous 5-year average of 62 percent.
Nationally the Crop Progress report estimated winter wheat condition at 43 percent good-to-excellent and 19 percent poor-to-very poor; winter wheat planted at 89 percent compared to 85 percent last week, 88 percent last year, and a 5-year average of 86 percent; and winter wheat emerged at 71 percent compared to 62 percent last week, 69 percent last year, and 5-year average of 70 percent. In Tennessee, winter wheat condition was estimated at 67 percent good-to-excellent and 4 percent poor-to-very poor; winter wheat planted was estimated at 64 percent compared to 56 percent last week, 56 percent last year, and a 5-year average of 62 percent; and winter wheat emerged at 48 percent compared to 36 percent last week, 32 percent last year, and a 5-year average of 37 percent. December 2020 wheat futures closed at $6.02, up 4 cents since last Friday. December 2020 wheat futures traded between $5.91 and $6.26 this week. December wheat-to-corn price ratio was 1.48. Dec/Mar and Dec/Jul future spreads were 7 and 3 cents. March 2021 wheat futures closed at $6.09, up 9 cents since last Friday. In Tennessee, new crop wheat cash contracts ranged from $5.86 to $6.17. July 2021 wheat futures closed at $6.05, up 13 cents since last Friday. Downside price protection could be obtained by purchasing a $6.10 July 2021 Put Option costing 47 cents establishing a $5.63 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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