Strong Prices And Trend Line Yields Project Gross Revenue Near Record Levels
DR. AARON SMITH
KNOXVILLE, TENNESSEE
At the start of December, harvest futures prices for the next production year (2022) are at the highest levels since 2013. On December 1, July wheat futures closed at $7.86 ½, December corn at $5.48 ½, and November soybeans at $12.14. December cotton prices are the highest since 2012, closing December 1 at 86.4 cents. Using a simple linear trend (1990 to 2021), Tennessee average yields are projected, for 2022, at 169 bu/acre for corn, 1,116 lb/acre for cotton, 48 bu/acre for soybeans, and 72 bu/acre for wheat. Without adjusting for basis, this would project average revenue per acre at $924 for corn, $965 for cotton, $579 for soybeans, and $568 for wheat (producers with higher yields will have anticipated revenues of over $1,000 per acre, for corn and cotton).
Strong prices and trend line yields project gross revenue near record levels. However, given the dramatic increase in input prices this may not result in positive net incomes for many farmers. With fertilizer prices two to three times higher than last year, fuel expense up 50 percent, and crop protection prices at historically high levels it will be a major challenge for producers to control costs while maintaining yields. The increased value of the crop and the higher input costs necessitate a more aggressive risk management plan than recent years. Having crop sales or price floors established on some production, as inputs are purchased, will assist in avoiding substantial losses should prices dramatically decline.
One obstacle to this strategy will be battling the recent past – it is human nature to have recent experiences effect future decisions. On average, producers that sold the 2021 crop at harvest did better than those that aggressively marketed early in 2021 or conducted incremental sales throughout the production year. Every crop year is different, so producers need to have versatility in their crop marketing and risk management plans to react to current market conditions. Using risk management tools will not achieve the highest possible returns, but it can assist in avoiding catastrophic outcomes.
Corn
Ethanol production for the week ending November 26 was 1.035 million barrels per day, down 44,000 from the previous week. Ethanol stocks were 20.301 million barrels, up 0.137 million compared to last week. Corn net sales reported by exporters for November 19-25, 2021, were down compared to last week with net sales of 40.2 million bushels for the 2021/22 marketing year and 0.01 million bushels for the 2022/23 marketing year. Exports for the same period were up 1 percent from last week at 36.9 million bushels. Corn export sales and commitments were 56 percent of the USDA estimated total exports for the 2021/22 marketing year (September 1 to August 31) compared to the previous 5- year average of 48 percent. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened at West, Northwest, West- Central, North-Central, and Mississippi River elevators and barge points. Overall, basis for the week ranged from 31 under to 30 over, with an average of 9 over the March futures at elevators and barge points. March 2021 corn futures closed at $5.84, down 7 cents since last Friday. For the week, March 2021 corn futures traded between $5.62 and $5.88.
Mar/May and Mar/Dec future spreads were 2 and -32 cents. May 2022 corn futures closed at $5.86, down 9 cents since last Friday. December 2022 corn futures closed at $5.52, down 10 cents since last Friday. Downside price protection could be obtained by purchasing a $5.60 December 2022 Put Option costing 60 cents establishing a $5.00 futures floor.
Soybeans
Net sales reported by exporters were down compared to last week with net sales of 39.1 million bushels for the 2021/22 marketing year and net sales cancellations of 1.8 million bushels for the 2022/23 marketing year. Exports for the same period were up 3 percent compared to last week at 85.5 million bushels. Soybean export sales and commitments were 67 percent of the USDA estimated total annual exports for the 2021/22 marketing year (September 1 to August 31), compared to the previous 5-year average of 66 percent. In Tennessee, soybeans harvested were estimated at 92 percent compared to 85 percent last week, 94 percent last year, and a 5-year average of 93 percent. Across Tennessee, average soybean basis strengthened at Northwest, West, West- Central, North-Central, and Mississippi River elevators and barge points. Basis ranged from 40 under to 31 over, with an average basis of 11 over the January futures contract, at the end of the week.
January 2022 soybean futures closed at $12.67, up 15 cents since last Friday. For the week, January 2022 soybean futures traded between $12.14 and $12.70. Jan/Mar and Jan/Nov future spreads were 4 and -33 cents. March 2022 soybean-to-corn price ratio was 2.18 at the end of the week. March 2022 soybean futures closed at $12.71, up 8 cents since last Friday.
Nov/Dec 2022 soybean-to-corn price ratio was 2.24 at the end of the week. November 2022 soybean futures closed at $12.34, down 6 cents since last Friday. Downside price protection could be achieved by purchasing a $12.40 November 2022 Put Option which would cost 88 cents and set an $11.52 futures floor.
Cotton
Net sales reported by exporters were up compared to last week with net sales of 374,900 bales for the 2021/22 marketing year. Exports for the same period were down 27 percent compared to last week at 71,400 bales. Upland cotton export sales were 64 percent of the USDA estimated total annual exports for the 2021/22 marketing year (August 1 to July 31), compared to the previous 5-year average of 66 percent. Delta upland cotton spot price quotes for December 2 were 103.45 cents/ lb (41-4-34) and 105.7 cents/lb (31-3-35). Adjusted world price decreased 5.59 cents to 97.06 cents.
Nationally, this week’s Crop Progress report estimated cotton harvested at 85 percent compared to 75 percent last week, 83 percent last year, and a 5-year average of 79 percent. In Tennessee, cotton harvested was estimated at 93 percent compared to 83 percent last week, 95 percent last year, and a 5-year average of 95 percent. March 2022 cotton futures closed at 104.2 cents, down 7.58 cents since last Friday. For the week, March 2022 cotton futures traded between 102.5 and 113.58 cents.
Mar/May and Mar/Dec cotton futures spreads were -1.29 cents and -16.45 cents. May 2022 cotton futures closed at 102.91 cents, down 7.02 cents since last Friday. December 2022 cotton futures closed at 87.75 cents, down 2.02 cents since last Friday. Downside price protection could be obtained by pur-chasing an 88 cent December 2022 Put Option costing 9.58 cents establishing a 78.42 cent futures floor.
Wheat
Wheat net sales reported by exporters were down compared to last week with net sales of 2.9 million bushels for the 2021/22 marketing year and 1.0 million bushels for the 2022/23 marketing year. Exports for the same period were up 36 percent from last week at 13.6 million bushels. Wheat export sales were 62 percent of the USDA estimated total annual exports for the 2021/22 marketing year (June 1 to May 31), compared to the previous 5-year average of 70 percent. March 2022 wheat futures closed at $8.05, down 29 cents since last Friday. March 2022 wheat futures traded between $7.82 and $8.55 this week. March wheat-to-corn price ratio was 1.38. Mar/May and Mar/Jul future spreads were 4 and -11 cents. May 2022 wheat futures closed at $8.09, down 31 cents since last Friday. May wheat-to-corn futures price ratio was 1.38.
Nationally, the Crop Progress report estimated winter wheat condition at 44 percent good-to-excellent and 23 percent poor-to-very poor; and winter wheat emerged at 92 percent compared to 86 percent last week, 92 percent last year, and a 5-year average of 91 percent. In Tennessee, winter wheat condition was estimated at 89 percent good-to- excellent and 2 percent poor-to-very poor; winter wheat planted at 95 percent compared to 90 percent last week and 95 percent last year; and winter wheat emerged at 84 percent compared to 72 percent last week and 85 percent last year. New crop wheat cash prices at elevators and barge points ranged from $7.52 to $8.23. July 2022 wheat futures closed at $7.94, down 40 cents since last Friday. Downside price protection could be obtained by purchasing an $8.00 July 2022 Put Option costing 66 cents establishing a $7.34 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee