Wheat Futures Prices Explode To The Upside
DR. AARON SMITH
KNOXVILLE, TENNESSEE
Wheat futures prices exploded to the upside this week. On Monday, the May contract was up 74 ¼ cents, Tuesday up 50 cents, Wednesday up 75 cents, Thursday up 75 cents, and Friday up 75 cents. $3.49 ¼ in one week or a 40.6 percent increase in price. The Friday closing price of $12.09 was the highest since March 2008.
The Ukraine-Russia war has been the catalyst for the explosion in wheat prices, however the foundation was set through several events that caused limited exportable global supplies. Ukraine is estimated to contribute 4.3 percent of global wheat production, 11.6 percent of global wheat exports, and less than 1 percent of global ending stocks.
Russia is estimated to contribute 9.7 percent of global wheat production, 16.9 percent of exports, and 3.8 percent of global stocks.
The two countries are responsible for 28.5 percent of global wheat exports – a substantial amount with a great deal of uncertainty moving forward.
Reduced wheat supplies in North America due to severe drought in Canada and the U.S. Northern Plains, in 2021, have lowered the amount of wheat available for export in the region. Additionally, dry weather in Argentina this year and Australia’s drought in 2018/19 and 2019/20 have caused export supplies to be tight. Reduced exportable stocks positioned wheat markets to be more susceptible to supply disruptions.
The conflict has two major potential disruptions for wheat markets.
First, logistical and infrastructure disruptions. Black Sea ports have been largely shut down and are likely to remain closed as long as the conflict persists. Additionally, the condition of the grain handling infrastructure, both inland and ports, will need to be assessed before exports are to resume. This will likely result in major infrastructure rebuilds and repairs which could hamper global market access for many months/years. The second major concern is production disruptions. The conflict could impact winter wheat harvest and spring planting.
Production restrictions could tighten global export supplies substantially. Impacts from both infrastructure/logistical and production disruptions are highly uncertain.
Producers best course of action is to optimize use of crop insurance and utilize marketing tools to protect the downside or secure sales when opportunities are presented.
Corn
Ethanol production for the week ending February 25 was 0.997 million barrels per day, down 27,000 from the previous week. Ethanol stocks were 24.933 million barrels, down 0.574 million compared to last week.
Corn net sales reported by exporters for February 18-24, 2022, were down compared to last week with net sales of 19.1 million bushels for the 2021/22 marketing year and 8.8 million bushels for the 2022/23 marketing year. Exports for the same period were down 18 percent from last week at 61.1 million bushels. Corn export sales and commitments were 78 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 76 percent. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at West and Mississippi River elevators and barge points and weakened at Northwest, West-Central, and North-Central elevators and barge points.
Overall, basis for the week ranged from 15 under to 48 over, with an average of 18 over the May futures at elevators and barge points. May 2022 corn futures closed at $7.54, up 99 cents since last Friday. For the week, May 2022 corn futures traded between $6.73 and $7.82. May/ Jul and May/Dec future spreads were -33 and -125 cents. July 2022 corn futures closed at $7.21, up 77 cents since last Friday.
New crop cash prices at elevators and barge points ranged from $5.72 to $6.31. December 2022 corn futures closed at $6.29, up 50 cents since last Friday. Downside price protection could be obtained by purchasing a $6.30 December 2022 Put Option costing 75 cents establishing a $5.55 futures floor.
Soybeans
Net sales reported by exporters were up compared to last week with net sales of 31.5 million bushels for the 2021/22 marketing year and 50.9 million bushes for the 2022/23 marketing year. Exports for the same period were down 40 percent compared to last week at 27.6 million bushels. Soybean export sales and commitments were 90 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 87 percent. Across Tennessee, average soybean basis strengthened or remained unchanged at West and Mississippi River elevators and barge points and weakened at Northwest, West-Central, and North-Central elevators and barge points. Basis ranged from 8 under to 48 over, with an average basis of 17 over the May futures contract. May 2022 soybean futures closed at $16.60, up 76 cents since last Friday. For the week, May 2022 soybean futures traded between $16.13 and $16.99. May/Jul and May/Nov future spreads were -27 and -210 cents. May 2022 soybean-to- corn price ratio was 2.20 at the end of the week. July 2022 soybean futures closed at $16.33, up 60 cents since last Friday.
Nov/Dec 2022 soybean-to-corn price ratio was 2.31 at the end of the week. New crop cash soybean prices at elevators and barge points ranged from $14.12 to $15.07. November 2022 soybean futures closed at $14.50, up 35 cents since last Friday. Downside price protection could be achieved by purchasing a $14.60 November 2022 Put Option which would cost 130 cents and set a $13.30 futures floor.
Cotton
Net sales reported by exporters were down compared to last week with net sales of 348,600 bales for the 2021/22 marketing year and 105,200 bales for the 2022/23 marketing year. Exports for the same period were down 6 percent compared to last week at 354,100 bales. Upland cotton export sales were 93 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 90 percent. Delta upland cotton spot price quotes for March 3 were 120.8 cents/lb (41-4-34) and 123.05 cents/lb (31-3-35). Adjusted world price decreased 1.03 cents to 112.71 cents. May 2022 cotton futures closed at 116.42 cents, down 2.21 cents since last Friday. For the week, May 2022 cotton futures traded between 116.15 and 123.31 cents. May/Jul and May/Dec cotton futures spreads were -3.31 cents and -15.77 cents. July 2022 cotton futures closed at 113.11 cents, down 2.23 cents since last Friday.
December 2022 cotton futures closed at 100.65 cents, up 0.32 cents since last Friday. Downside price protection could be obtained by purchasing a 101 cent December 2022 Put Option costing 9.1 cents establishing a 91.9 cent futures floor.
Wheat
Wheat net sales reported by exporters were down compared to last week with net sales of 11.0 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 down 33 percent from last week at 13.4 million bushels. Wheat export sales were 84 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 94 percent. Wheat cash prices at elevators and barge points ranged from $9.54 to $11.54. May 2022 wheat futures closed at $12.09, up 350 cents since last Friday.
May 2022 wheat futures traded between $8.85 and $12.09 this week. May wheat-to-corn price ratio was 1.60. May/Jul and May/Sep future spreads were -34 and -146 cents. New crop wheat cash prices at elevators and barge points ranged from $8.85 to $11.06. July 2022 wheat futures closed at $11.75, up 325 cents since last Friday. Downside price protection could be obtained by purchasing an $11.80 July 2022 Put Option costing 173 cents establishing a $10.07 futures floor. September 2022 wheat futures closed at $10.63, up 224 cents since last Friday. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee