Current Prices Are Very Positive For Crop Producers
DR. AARON SMITH
KNOXVILLE, TENNESSEE
We have entered arguably the most important time of the year, for risk management, for spring planted row crops in Tennessee – the projected price determination period for corn, cotton, and soybeans. The prices established will be the starting point for many producers’ risk management plans for the 2022 crop year. As of February 4, the projected prices were, corn $5.73, soybeans $13.88, and cotton $1.03 (wheat projected price was set September 15 at $7.14). The next three weeks will determine the final projected prices, but current prices are very positive for crop producers.
Based on Tennessee average yields (as a proxy for APH) and current projected crop insurance prices, with a 75 percent coverage buy-up, revenue guarantees would be $735/acre, $521/acre, and $824/acre for corn, soybeans, and cotton. These potential revenue guarantees could provide partial mitigation of the high input prices producers are currently facing. Producers will have numerous decisions to make (coverage level, unit structure, plan type, SCO or ECO, and other crop insurance options). As such, working with a qualified crop insurance agent to select the optimal insurance plans for individual operations or fields is essential.
In Tennessee for the 2021 crop year, 92.8 percent of corn acres, 81.9 percent of cotton acres, 87 percent of soybean acres, and 54.8 percent of wheat acres were insured through Revenue Protection (RP) plans. Other plans purchased by Tennessee producers included YP, area insurance products, and companion policies.
Final projected crop insurance prices will partially determine planted acres. Last year, Tennessee producers planted an estimated 1.02 million acres of corn, 275,000 acres of cotton, and 1.55 million acres of soybeans, with approximately 31,000 acres pre-vented from being planted in the spring – a total of 2.88 million acres. Assuming the same number of total acres available for planting, how will planted acres be divided in 2022? My initial estimates would be 350,000 acres of cotton, 1 million acres of corn, and 1.53 million acres of soybeans. Although the runup in soybeans the past two weeks has probably moved the needle towards a few more soybean acres. A lot can change between now and planting, but acreage in Tennessee is likely to remain very competitive and sensitive to relative price movements.
Corn
Ethanol production for the week ending January 28 was 1.041 million barrels per day, up 6,000 from the previous week. Ethanol stocks were 25.854 million barrels, up 1.378 million compared to last week. Corn net sales reported by exporters for January 21-27, 2022, were down compared to last week with net sales of 46.3 million bushels for the 2021/22 marketing year. Exports for the same period were down 19 percent from last week at 45.9 million bushels. Corn export sales and commitments were 73 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 67 percent. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at West, Northwest, West-Central, and North-Central elevators and barge points and weakened at Mississippi River elevators and barge points. Overall, basis for the week ranged from 15 under to 43 over, with an average of 16 over the March futures at elevators and barge points. March 2022 corn futures closed at $6.20, down 16 cents since last Friday. For the week, March 2022 corn futures traded between $6.10 and $6.42. Mar/May and Mar/Dec future spreads were 1 and -47 cents. May 2022 corn futures closed at $6.21, down 12 cents since last Friday.
New crop cash prices at elevators and barge points ranged from $5.33 to $5.83. December 2022 corn futures closed at $5.73, up 4 cents since last Friday. Downside price protection could be obtained by purchasing a $5.80 December 2022 Put Option costing 58 cents establishing a $5.22 futures floor.
Soybeans
Net sales reported by exporters were up compared to last week with net sales of 40.3 million bushels for the 2021/22 marketing year and 32.4 million bushes for the 2022/23 marketing year. Exports for the same period were down 17 percent compared to last week at 48.8 million bushels. Soybean export sales and commitments were 81 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 81 percent. Across Tennessee, average soybean basis strengthened or remained unchanged at West, Northwest, and West-Central elevators and barge points and weakened at Mississippi River and North-Central elevators and barge points. Basis ranged from 20 under to 41 over, with an average basis of 13 over the March futures contract. March 2022 soybean futures closed at $15.53, up 83 cents since last Friday. For the week, March 2022 soybean futures traded between $14.73 and $15.64. Mar/May and Mar/Nov future spreads were 4 and -158 cents. March 2022 soybean-to-corn price ratio was 2.50 at the end of the week. May 2022 soy-bean futures closed at $15.57, up 82 cents since last Friday.
Nov/Dec 2022 soybean-to-corn price ratio was 2.43 at the end of the week. New crop cash soybean prices at elevators and barge points ranged from $13.42 to $15.78. November 2022 soybean futures closed at $13.95, up 44 cents since last Friday. Downside price protection could be achieved by purchasing a $14.00 November 2022 Put Option which would cost 112 cents and set a $12.88 futures floor.
Cotton
Net sales reported by exporters were up compared to last week with net sales of 332,100 bales for the 2021/22 marketing year and 315,100 bales for the 2022/23 marketing year. Exports for the same period were up 53 percent compared to last week at 302,100 bales – a marketing year high. Upland cotton export sales were 82 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 82 percent.
Delta upland cotton spot price quotes for February 3 were 127.37 cents/ lb (41-4-34) and 129.62 cents/lb (31-3-35). Adjusted world price increased 3.67 cents to 116.1 cents. March 2022 cotton futures closed at 126.74 cents, up 2.98 cents since last Friday. For the week, March 2022 cotton futures traded between 123.25 and 129.37 cents. Mar/May and Mar/Dec cotton futures spreads were -2.75 cents and -22.93 cents. May 2022 cotton futures closed at 123.99 cents, up 3.15 cents since last Friday.
December 2022 cotton futures closed at 103.81 cents, up 4.08 cents since last Friday. Downside price protection could be obtained by purchasing a 104 cent December 2022 Put Option costing 9.81 cents establishing a 94.19 cent futures floor.
Wheat
Wheat net sales reported by exporters were down compared to last week with net sales of 2.1 million bushels for the 2021/22 marketing year and 3.8 million bushels for the 2022/23 marketing year. Exports for the same period were up 6 percent from last week at 14.1 million bushels. Wheat export sales were 78 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 86 percent. Wheat cash prices at elevators and barge points ranged from $7.86 to $8.04. March 2022 wheat futures closed at $7.63, down 23 cents since last Friday. March 2022 wheat futures traded between $7.40 and $7.98 this week.
March wheat-to-corn price ratio was 1.23. Mar/May and Mar/Jul future spreads were 7 and -2 cents. May 2022 wheat futures closed at $7.70, down 21 cents since last Friday. May wheat-to-corn futures price ratio was 1.24. New crop wheat cash prices at elevators and barge points ranged from $7.20 to $7.70. July 2022 wheat futures closed at $7.61, down 21 cents since last Friday. Downside price protection could be obtained by purchasing a $7.70 July 2022 Put Option costing 59 cents establishing a $7.11 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee