Ethanol Production For Week Ending January 14 Was 1.053 Million Barrels Per Day
DR. AARON SMITH
KNOXVILLE, TENNESSEE
The rise in fertilizer and other input prices has been well documented. In Tennessee, 2022 estimates for corn, cotton, and soybean production have total costs up 31-39 percent, 21-27 percent, and 18-29 percent compared to 2021. A large portion of the increased cost can be attributed to fertilizer prices. For example, UAN is up 171 percent, urea is up 148 percent, potash is up 119 percent, and DAP is up 79 percent compared to the same week last year. The direction of input prices remains highly uncertain. A reasonable case can be made for additional increases or a moderate pull back in fertilizer prices in the 1st quarter of 2022.
Current commodity prices have helped to maintain the potential for profitable outcomes for the 2022 crop year. However, a lot can change during a growing season, so producers should examine ways to mitigate the increased financial risk in 2022. Using output price risk management to offset increased financial risk, due to higher input prices, should be investigated by producers. One method to examine the increased financial risk is to estimate the number of bushels (or lbs) of projected production re-quired to cover specified input costs. For example, last year based on prevailing corn market prices of $4.40/bu, 33 bu/acre of production would be required to pay for fertilizer expenses – estimated at $148/acre. In 2022, even with a projected harvest price substantially higher at $5.65/bu, it would take 56 bu/ acre to cover fertilizer expenses – estimated at $318/acre. Assuming a yield target of 175 bu/acre, 32 percent of total production would be required to cover fertilizer expense, compared to 18.8 percent in 2021.
To mitigate the increased financial risk, price risk management can be useful. This can be accomplished through temporarily bridging price risk gaps or establishing final cash prices. Establishing final cash prices is the simpler of the two concepts. A producer can simply use a cash forward contract, for harvest delivery, to secure a price. If the farm has 1,000 acres of corn the producer could contract 56,000 bushels (56 bu/acre x 1,000) at $5.65 to cover his fertilizer expense.
This is a reasonable strategy; however, producers should be cognizant about exchanging price risk for production risk or selling their way out of an extended market rally. The second option is to identify price risk gaps and obtain temporary protection against decreases in price. An example of this would be using options to bridge the time gap until crop insurance provides some protection. A $5.60 December put option could be purchased for 48 cents. The put option would be held at least until crop insurance prices were set, at which time the remaining time-value of the option could be recovered or the put option could be held if market conditions dictated. While both strategies have advantages and disadvantages, however producers need to be thinking about how to offset the increased financial and price risk that is in 2022 markets.
Corn
Ethanol production for the week ending January 14 was 1.053 million barrels per day, up 47,000 from the previous week. Ethanol stocks were 23.592 million barrels, up 0.681 million compared to last week. Corn net sales reported by exporters for January 7-13, 2022, were up compared to last week with net sales of 43 million bushels for the 2021/22 marketing year and 4.1 million bushels for the 2022/23 marketing year. Exports for the same period were up 28 percent from last week at 51.1 million bushels – a marketing year high. Corn export sales and commitments were 69 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 61 percent. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at West, Northwest, West-Central, North-Central, and Mississippi River elevators and barge points. Overall, basis for the week ranged from 15 under to 38 over, with an average of 15 over the March futures at elevators and barge points.
March 2022 corn futures closed at $6.16, up 20 cents since last Friday. For the week, March 2022 corn futures traded between $5.88 and $6.18. Mar/May and Mar/Dec future spreads were -2 and -51 cents. May 2022 corn futures closed at $6.14, up 7 cents since last Friday.
New crop cash prices at elevators and barge points ranged from $5.22 to $5.76. December 2022 corn futures closed at $5.65, up 7 cents since last Friday. Downside price protection could be obtained by purchasing a $5.70 December 2022 Put Option costing 57 cents establishing a $5.13 futures floor.
Soybeans
Net sales reported by exporters were up compared to last week with net sales of 24.7 million bushels for the 2021/22 marketing year and 19.4 million bushes for the 2022/23 marketing year. Exports for the same period were up 77 percent compared to last week at 66.3 million bushels. Soybean export sales and commitments were 77 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 79 percent. Across Tennessee, average soybean basis strengthened or remained unchanged at West-Central and North-Central elevators and barge points and weakened at West, Northwest, and Mississippi River elevators and barge points. Basis ranged from 20 under to 40 over, with an average basis of 13 over the March futures contract. March 2022 soybean futures closed at $14.14, up 45 cents since last Friday. For the week, March 2022 soybean futures traded between $13.49 and $14.29. Mar/May and Mar/Nov future spreads were 9 and -98 cents. March 2022 soybean-to-corn price ratio was 2.3 at the end of the week. May 2022 soybean futures closed at $14.23, up 44 cents since last Friday.
Nov/Dec 2022 soybean-to-corn price ratio was 2.33 at the end of the week. New crop cash soybean prices at elevators and barge points ranged from $12.56 to $13.43. November 2022 soybean futures closed at $13.16, up 23 cents since last Friday. Downside price protection could be achieved by purchasing a $13.20 November 2022 Put Option which would cost 96 cents and set a $12.24 futures floor.
Cotton
Net sales reported by exporters were down compared to last week with net sales of 273,000 bales for the 2021/22 marketing year and 139,200 bales for the 2022/23 marketing year. Exports for the same period were up 19 percent compared to last week at 198,700 bales. Upland cotton export sales were 77 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 78 percent. Delta upland cotton spot price quotes for January 20 were 122.62 cents/lb (41-4-34) and 124.87 cents/lb (31-3-35). Adjusted world price increased 4.86 cents to 110.44 cents. March 2022 cotton futures closed at 120.75 cents, up 1.05 cents since last Friday. For the week, March 2022 cotton futures traded between 119.05 and 124.78 cents. Mar/May and Mar/Dec cotton futures spreads were -2.77 cents and -21.9 cents. May 2022 cotton futures closed at 117.98 cents, up 1.64 cents since last Friday.
December 2022 cotton futures closed at 98.85 cents, up 2.02 cents since last Friday. Downside price protection could be obtained by purchasing a 99 cent December 2022 Put Option costing 9.56 cents establishing a 89.44 cent futures floor.
Wheat
Wheat net sales reported by exporters were up compared to last week with net sales of 14 million bushels for the 2021/22 marketing year and 2.6 million bushels for the 2022/23 marketing year. Exports for the same period were up 52 percent from last week at 14.4 million bushels. Wheat export sales were 75 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 82 percent. Wheat cash prices at elevators and barge points ranged from $7.89 to $8.27. March 2022 wheat futures closed at $7.80, up 39 cents since last Friday.
March 2022 wheat futures traded between $7.41 and $8.02 this week. March wheat-to-corn price ratio was 1.27. Mar/May and Mar/Jul future spreads were 4 and -6 cents. May 2022 wheat futures closed at $7.84, up 40 cents since last Friday. May wheat-to-corn futures price ratio was 1.27. New crop wheat cash prices at elevators and barge points ranged from $7.27 to $8.20. July 2022 wheat futures closed at $7.74, up 37 cents since last Friday. Downside price protection could be obtained by purchasing a $7.80 July 2022 Put Option costing 59 cents establishing a $7.21 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee