Tight Global Stocks And Export Demand Continue To Drive Prices Higher
DR. AARON SMITH
KNOXVILLE, TENN.
Corn ($4.79), soybeans ($12.52 ¾), wheat ($6.72 ¾), and cotton (89.28 cents) all set harvest contract highs this week. Tight global stocks and export demand for grain, oilseeds, and cotton continue to drive prices higher. China has been the major purchaser of US agricultural products, however demand from other countries has also been robust.
While prices may continue the uptrend producers should consider having a price established on some of their estimated 2021 production. Using pricing strategies that allow for producers to participate in additional rallies can be considered. Buying put options establish a futures price floor while leaving the potential for upside gains.
Another alternative is selling cash forward or futures contracts and buying call options – this will establish a price and allow gains above the call strike. These risk management strategies come at a premium and/or margin cost, but provide downside protection. For those new to futures and options, working with a broker or grain merchandiser, to develop a strategy is recommended.
Brazil’s soybean harvest continues to be 2-3 weeks behind normal pace, limiting exports of soybeans to global purchasers. The cold weather across the southern plains last week has many concerned that winter kill could affect hard red winter wheat production. After setting the December contract high cotton futures dropped 5 cents on Thursday and Friday, closing the week just under 85 cents.
Crop insurance prices are almost finalized. The strong futures prices during February have provided a much higher projected (spring) crop insurance price for Tennessee producers. The projected (spring) crop insurance prices (as at February 25) are: corn – $4.58 (up $0.70 compared to last year); soybeans – $11.85 (up $2.68); and cotton – $0.83 (up $0.15). This is very good news for crop producers as the elevated crop insurance prices will provide increased revenue guarantees compared to recent years. Premiums will be higher for the same buy-up coverage. Producers are encouraged to work closely with their crop insurance provider to examine crop insurance products and weigh coverage and premium tradeoffs before March 15.
Corn
Ethanol production for the week ending February 19 was 0.658 million barrels per day, down 253,000 barrels from the previous week. Ethanol stocks were 22.785 million barrels, down 1.512 million barrels compared to last week. Corn net sales reported by exporters for February 12-18 were down compared to last week with net sales of 17.8 million bushels for the 2020/21 marketing year and 5.7 million bushels for the 2021/22 marketing year. Exports for the same time period were down 14 percent from last week at 46.9 million bushels. Corn export sales and commitments were 89 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 68 percent. Across Tennessee, average corn basis (cash price-nearby futures price) weakened or remained unchanged at Northwest, North-Central, West- Central, West, and Mississippi River elevators and barge points.
Overall, basis for the week ranged from 5 over to 41 over, with an average of 23 over the March futures at elevators and barge points. March 2021 corn futures closed at $5.55, up 13 cents since last Friday. For the week, March 2021 corn futures traded between $5.42 and $5.60. Mar/May and Mar/Dec future spreads were -8 and -85 cents. May 2021 corn futures closed at $5.47, up 6 cents since last Friday.
December 2021 corn futures closed at $4.70, up 10 cents since last Friday. Downside price protection could be obtained by purchasing a $4.80 December 2021 Put Option costing 52 cents establishing a $4.28 futures floor.
Soybeans
Net sales reported by exporters were down compared to last week with net sales of 6.2 million bushels for the 2020/21 marketing year and 2.6 million bushels for the 2021/22 marketing year. Exports for the same period were up 5 percent compared to last week at 38.7 million bushels. Soybean export sales and commitments were 98 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 82 percent. Across Tennessee, average soybean basis strengthened or remained unchanged at West-Central, North-Central, Northwest, and Mississippi River and weakened at West elevators and barge points. Basis ranged from 2 under to 37 over the March futures contract. Average basis at the end of the week was 19 over the March futures contract. March 2021 soybean futures closed at $14.05, up 28 cents since last Friday. For the week, March 2021 soybean futures traded between $13.71 and $14.43. Mar/May and Mar/Nov future spreads were – 1 and – 182 cents. May 2021 soybean futures closed at $14.04, up 24 cents since last Friday. March 2021 soybean-to-corn price ratio was 2.53 at the end of the week.
November 2021 soybean futures closed at $12.23, up 27 cents since last Friday. Downside price protection could be achieved by purchasing a $12.40 November 2021 Put Option which would cost 100 cents and set an $11.40 futures floor. Nov/Dec 2021 soybean-to-corn price ratio was 2.60 at the end of the week.
Cotton
Net sales reported by exporters were up compared to last week with net sales of 247,800 bales for the 2020/21 marketing year and 40,700 bales for the 2021/22 marketing year. Exports for the same time period were down 6 percent compared to last week at 292,400 bales. Upland cotton export sales were 94% 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 86 percent. Delta upland cotton spot price quotes for February 25 were 86.94 cents/lb (41-4-34) and 89.19 cents/ lb (31-3-35). Adjusted World Price (AWP) increased 2.63 cents to 75.76 cents. March 2021 cotton futures closed at 87.82, down 1.13 cents since last Friday. For the week, March 2021 cotton futures traded between 87.81 and 92.95 cents. Mar/May and Mar/Dec cotton futures spreads were 1.01 cents and -3.49 cents. May 2021 cotton futures closed at 88.83 cents, down 1.65 cents since last Friday.
December 2021 cotton futures closed at 84.33 cents, down 1.17 cents since last Friday. Downside price protection could be obtained by purchasing an 85 cent December 2021 Put Option costing 7 cents establishing a 78 cent futures floor.
Wheat
Wheat net sales reported by exporters were down compared to last week with net sales of 6.2 million bushels for the 2020/21 marketing year and 0.5 million bushels for the 2021/22 marketing year. Exports for the same time period were up 4 percent from last week at 14.4 million bushels. Wheat export sales were 89 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 92 percent. In Tennessee, spot wheat prices ranged from $6.94 to $7.10. March 2021 wheat futures closed at $6.55, up 5 cents since last Friday. March 2021 wheat futures traded between $6.51 and $6.83 this week. March wheat-to-corn price ratio was 1.18. Mar/May and Mar/Jul future spreads were 5 and -7 cents. May 2021 wheat futures closed at $6.60, up 5 cents since last Friday.
In Tennessee, new crop wheat cash contracts ranged from $6.43 to $7.10. July 2021 wheat futures closed at $6.50, up 7 cents since last Friday. Downside price protection could be obtained by purchasing a $6.50 July 2021 Put Option costing 45 cents establishing a $6.05 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee