Profitability For Corn In The Mid-South Looks Good Compared To Other Crops

DR. AARON SMITH

KNOXVILLE, TENNESSEE

   December corn futures have been moving mostly sideways since mid- November – trading between $5.35 and $5.65. There is still a great deal of uncertainty regarding Brazil’s second crop corn planting/ production and North American planted acres. Profitability for corn in the mid-south looks good compared to other crops, but will producers commit the financial resources to plant the crop – given high fertilizer prices and concerns over input availability.

   November soybean prices pulled back from last week’s high of $13.22 ½ due to improved weather forecasts in South America and increased US production and ending stocks – due to revisions in yield on the January USDA WASDE. The second highest US soybean yield occurred last year in spite of the severe drought that covered the Northern Plains. 

   The diminished yields were offset by increased production in the South and Eastern Corn Belt. In South America production continues to remain uncertain with mostly beneficial conditions in the North and drought in Southern Brazil and Argentina. South American production will be a key determinant if export sales are to achieve USDA targets.

   December 2022 cotton futures appear poised to break above $1. The recent WASDE decreased US yield and ending stocks precipitating an end of the week rally that saw cotton post triple digit gains from Wednesday to Friday. Some caution does need to be exerted in cotton markets as worries about demand erosion and increased global acres planted could through cold water on the rally that started in April of 2020. In the short-term cotton is likely to maintain its bullish momentum.

   Wheat futures have declined dramatically since the November 24 high. 

   The July contract peaked on November 24 at $8.63, since then prices have dropped over $1.20/bu. US stocks remain low relative to the last 5-years, however exports have been revised down due to a lack of competitiveness in foreign markets.

   Corn

   Ethanol production for the week ending January 7 was 1.006 million barrels per day, down 42,000 from the previous week. Ethanol stocks were 22.911 million barrels, up 1.552 million compared to last week. 

   Corn net sales reported by exporters for December 31-January 6, 2022, were up compared to last week with net sales of 18 million bushels for the 2021/22 marketing year. Exports for the same period were up 3 percent from last week at 39.8 million bushels. Corn export sales and commitments were 67 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 59 percent. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened at West and Mississippi River elevators and barge points and weakened or remained unchanged at Northwest, West-Central, and North-Central elevators and barge points. Overall, basis for the week ranged from 15 under to 35 over, with an average of 15 over the March futures at elevators and barge points. March 2022 corn futures closed at $5.96, down 10 cents since last Friday. For the week, March 2022 corn futures traded between $5.85 and $6.08. Mar/May and Mar/Dec future spreads were 1 and -38 cents. May 2022 corn futures closed at $5.97, down 10 cents since last Friday.

   New crop cash prices at elevators and barge points ranged from $5.22 to $5.69. December 2022 corn futures closed at $5.58, up 1 cent since last Friday. Downside price protection could be obtained by purchasing a $5.60 December 2022 Put Option costing 50 cents establishing a $5.10 futures floor.

   Soybeans

   Net sales reported by exporters were up compared to last week with net sales of 27.0 million bushels for the 2021/22 marketing year and 6.7 million bushes for the 2022/23 marketing year. Exports for the same period were down 42 percent compared to last week at 37.5 million bushels. Soybean export sales and commitments were 76 percent of the USDA estimated total annual ex-ports for the 2021/22 marketing year (September 1 to August 31), compared to the previous 5-year average of 77 percent. Across Tennessee, average soybean basis strengthened or remained unchanged at West, Northwest, West-Central, North-Central, and Mississippi River elevators and barge points. Basis ranged from 20 under to 53 over, with an average basis of 19 over the March futures contract. March 2022 soybean futures closed at $13.69, down 41 cents since last Friday. For the week, March 2022 soybean futures traded between $13.63 and $14.09. Mar/May and Mar/Nov future spreads were 10 and -76 cents. March 2022 soybean-to-corn price ratio was 2.3 at the end of the week. May 2022 soybean futures closed at $13.79, down 39 cents since last Friday.

   Nov/Dec 2022 soybean-to-corn price ratio was 2.32 at the end of the week. New crop cash soybean prices at elevators and barge points ranged from $12.72 to $13.74. November 2022 soybean futures closed at $12.93, down 28 cents since last Friday. Downside price protection could be achieved by purchasing a $13.00 November 2022 Put Option which would cost 92 cents and set a $12.08 futures floor.

   Cotton

   Net sales reported by exporters were up compared to last week with net sales of 401,000 bales for the 2021/22 marketing year and 38,300 bales for the 2022/23 marketing year. Exports for the same period were up 60 percent compared to last week at 167,600 bales. Upland cotton export sales were 76 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 77 percent. Delta upland cotton spot price quotes for January 12 were 117.14 cents/lb (41-4-34) and 119.39 cents/ lb (31-3-35). Adjusted world price increased 1.73 cents to 105.58 cents. March 2022 cotton futures closed at 119.7 cents, up 4.58 cents since last Friday. For the week, March 2022 cotton futures traded between 114.82 and 119.9 cents. Mar/May and Mar/Dec cotton futures spreads were -3.36 cents and -22.87 cents. May 2022 cotton futures closed at 116.34 cents, up 3.46 cents since last Friday.

   December 2022 cotton futures closed at 96.83 cents, up 2.31 cents since last Friday. Downside price protection could be obtained by purchasing a 97 cent December 2022 Put Option costing 9.76 cents establishing a 87.24 cent futures floor.

   Wheat

   Wheat net sales reported by exporters were up compared to last week with net sales of 9.7 million bushels for the 2021/22 marketing year. 

   Exports for the same period were up 23 percent from last week at 9.5 million bushels. Wheat export sales were 73 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 81 percent. 

   Wheat cash prices at elevators and barge points ranged from $7.56 to $8.00. March 2022 wheat futures closed at $7.41, down 17 cents since last Friday. March 2022 wheat futures traded between $7.37 and $7.70 this week. March wheat-to-corn price ratio was 1.24. Mar/May and Mar/ Jul future spreads were 3 and -4 cents. May 2022 wheat futures closed at $7.44, down 16 cents since last Friday. May wheat-to-corn futures price ratio was 1.25.

   New crop wheat cash prices at elevators and barge points ranged from $7.23 to $7.93. July 2022 wheat futures closed at $7.37, down 20 cents since last Friday. Downside price protection could be obtained by purchasing a $7.40 July 2022 Put Option costing 51 cents establishing a $6.89 futures floor. ∆

   DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee