Drought Concerns, Tightening Supplies Propel Harvest Corn Futures Higher
DR. AARON SMITH
KNOXVILLE, TENN.
Drought concerns and tightening supplies continue to propel harvest corn futures higher. Dry conditions combined with late planting are currently influencing Brazil’s projected second crop corn production.
The second crop in Brazil is normally harvested July through September and competes with the US for export markets. There are also concerns with drought in the US, particularly in the Northern and Southern plains, where the latest US drought monitor estimates 100 percent of North Dakota is Abnormally Dry and 75 percent is in Extreme Drought; and in Texas 91 percent is Abnormally Dry and 24 percent is in Extreme Drought. It is still early in the production year, but moisture is lacking in several key corn producing states. Due to drought concerns and very strong export sales and shipments, December corn has gained 30 cents from March 31 to April 15. Like corn, soybean futures have also gained since the end of March.
New crop futures are now within 25 cents of $13/bu and could go higher without greater acres planted this spring/summer or greater than trend line national average yields. US stocks are functionally out, estimated at 120 million bushels by the USDA. With limited US stocks remaining, it is very likely the US will import a small amount soybeans this summer to aid in meeting domestic crush needs.
Half, 18 of the past 36 trading days have seen cotton harvest futures move triple digits (up or down). The December contract peaked on February 25 at 89.28 cents, fell to a three month low on March 26 of 75.34 cents, and rebounded to close April 16 at 82.53 cents.
Substantial movements over a short period. While the Southern Plains drought remains an important factor, a lot of the volatility has been due to export expectations – particularly with China. Trade relations with China are likely to remain uncertain as conversations with the new US administration occur, so volatility should continue to be expected. That being said, there are more bullish factors influencing cotton than bearish in today’s market.
Although the current outlook is bullish, producers should consider marketing strategies to take risk off the table. Put and Call options can be used to remove some downside risk while allowing for producers to still participate in futures market rallies. Working with a qualified professional is advisable when developing and implementing marketing strategies.
Corn
Ethanol production for the week ending April 2 was 0.941 million barrels per day, down 34,000 barrels from the previous week. Ethanol stocks were 20.518 million barrels, down 0.124 million barrels compared to last week. Corn net sales reported by exporters for April 2-8, 2021 were down compared to last week with net sales of 12.9 million bushels for the 2020/21 marketing year and 2.1 million bushels for the 2021/22 marketing year. Exports for the same time period were down 12 percent from last week at 71.5 million bushels. Corn export sales and commitments were 98% 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 84 percent. Across Tennessee, average corn basis (cash price-nearby futures price) weakened at West and Mississippi River, and strengthened or remained unchanged at North- Central, West-Central, and Northwest elevators and barge points.
Overall, basis for the week ranged from 15 over to 36 over, with an average of 27 over the May futures at elevators and barge points. May 2021 corn futures closed at $5.85, up 8 cents since last Friday. For the week, May 2021 corn futures traded between $5.65 and $6.01. May/ Jul and May/Dec future spreads were -12 and -73 cents. July 2021 corn futures closed at $5.73, up 11 cents since last FridayIn Tennessee, new crop cash corn prices at elevators and barge points ranged from $4.86 to $5.33. December 2021 corn futures closed at $5.12, up 16 cents since last Friday. Downside price protection could be obtained by purchasing a $5.20 December 2021 Put Option costing 52 cents establishing a $4.68 futures floor.
Soybeans
Net sales reported by exporters were down compared to last week with net sales of 3.3 million bushels for the 2020/21 marketing year and 9.8 million bushels for the 2021/22 marketing year. Exports for the same period were up 20 percent compared to last week at 15.2 million bushels. Soybean export sales and commitments were 98% 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 91 percent. Across Tennessee, average soybean basis weakened or remained unchanged at West, West-Central, North-Central, and Northwest, and strengthened at Mississippi River elevators and barge points. Basis ranged from even to 27 over the May futures contract.
Average basis at the end of the week was 13 over the May futures contract. May 2021 soybean futures closed at $14.33, up 30 cents since last Friday. For the week, May 2021 soybean futures traded between $13.87 and $14.37. May/Jul and May/Nov future spreads were -11 and -159 cents. May 2021 soybean-to-corn price ratio was 2.45 at the end of the week. July 2021 soybean futures closed at $14.22, up 24 cents since last Friday.
In Tennessee, new crop cash soybean prices at elevators and barge points ranged from $12.46 to $12.97. November 2021 soybean futures closed at $12.74, up 11 cents since last Friday. Downside price protection could be achieved by purchasing a $12.80 November 2021 Put Option which would cost 74 cents and set a $12.06 futures floor. Nov/ Dec 2021 soybean-to-corn price ratio was 2.49 at the end of the week.
Cotton
Net sales reported by exporters were down compared to last week with net sales of 122,300 bales for the 2020/21 marketing year and 22,800 bales for the 2021/22 marketing year. Exports for the same time period were down 26 percent compared to last week at 313,200 bales. Upland cotton export sales were 103 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 99%. Delta upland cotton spot price quotes for April 15 were 82.77 cents/lb (41-4-34) and 85.02 cents/lb (31-3-35). Adjusted world price increased 3.24 cents to 68.16 cents. May 2021 cotton futures closed at 83.71, up 1.31 cents since last Friday. For the week, May 2021 cotton futures traded between 79.84 and 85.23 cents. May/Jul and May/Dec cotton futures spreads were 1.32 cents and -1.18 cents. July 2021 cotton futures closed at 85.03 cents, up 1.29 cents since last Friday.
December 2021 cotton futures closed at 82.53 cents, up 0.75 cents since last Friday. Downside price protection could be obtained by purchasing an 83 cent December 2021 Put Option costing 6.91 cents establishing a 76.09 cent futures floor.
Wheat
Wheat net sales reported by exporters were down compared to last week with net sales cancelations of 2.1 million bushels for the 2020/21 marketing year and net sales of 10.1 million bushels for the 2021/22 marketing year. Exports for the same time period were down 26 percent from last week at 17.2 million bushels. Wheat export sales were 95% 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 102 percent. In Tennessee, spot wheat prices ranged from $6.63 to $6.89. May 2021 wheat futures closed at $6.52, up 14 cents since last Friday. May 2021 wheat futures traded between $6.23 and $6.59 this week. May wheat-to-corn price ratio was 1.11. May/Jul and May/Sep future spreads were 3 and 4 cents.
In Tennessee, new crop wheat cash contracts ranged from $6.18 to $6.80. July 2021 wheat futures closed at $6.55, up 15 cents since last Friday. Downside price protection could be obtained by purchasing a $6.60 July 2021 Put Option costing 36 cents establishing a $6.24 futures floor. September 2021 wheat futures closed at $6.56, up 15 cents since last Friday. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee