Corn Prices Are Rapidly Approaching The August 2012 High
DR. AARON SMITH
KNOXVILLE, TENNESSEE
Where are corn prices headed? Since September 10, 2021, nearby corn futures prices have increased $2.87 ¼ ($5.02 ¾ to $7.90), a 57 percent increase. New crop futures are up $2.34 ¼ to $7.35 ½.
Russia’s invasion of Ukraine, drought in the Southern Plains and Western US, high fertilizer prices, strong export demand, and the recent USDA Prospective Plantings report have all provided fuel to the rally. The December contract has closed up 16 of the last 20 trading days. Prices are rapidly approaching the August 2012 high of $8.43 ¾.
Prices will not go up forever, but right now there appears to be little that can slow the ascent in the short term. The increase in price has likely increased US corn planted acreage 1.0 to 2.0 million acres compared to the March 31 estimate. However, any acreage increase will not be confirmed for a couple of months and tremendous uncertainty exists regarding whether planting conditions will be supportive to increased corn acres. The next most likely short-term challenges to the corn price rally will be early season weather conditions and potential slowing of export demand at elevated prices.
Both seem unlikely based on today’s information. Long-term elevated prices will spur additional global production and reduce prices.
However, in the short term it appears likely that prices will continue to remain very strong and perhaps challenge all-time highs. The caution in the current market was passed to me by an experienced trader who said, “when everything looks bullish, markets are more susceptible to a bearish surprise”.
Similar to corn, cotton markets have a strong upward trend. On Thursday the December contract set a new contract high of 124.36. 18 of the last 22 trading days have seen December cotton futures prices increase. Old crop unfixed call sales compared to unfixed call purchases are at 8.51:1 indicating the need for additional purchases between now and July. Combining the on-call sales positions with the drought in the Southern Plains – 88 percent of Texas and 74 percent of Oklahoma are in drought according to the US Drought Monitor, a very bullish situation can be projected. However, some caution does need to be interjected, as prices at current levels are likely to create demand erosion by synthetic fibers. That being said cotton prices are likely to remain high given the competition for acres in the US. For both, corn and cotton producers should be actively seeking marketing and risk management strategies that can remove some downside price risk at these elevated levels. High prices do not last indefinitely, so take advantage of pricing opportunities when they are presented.
Corn
Ethanol production for the week ending April 8 was 0.995 million barrels per day, down 8,000 from the previous week. Ethanol stocks were 24.803 million barrels, down 1.1 million compared to last week.
Corn net sales reported by exporters for April 1-7, 2022, were up compared to last week with net sales of 52.5 million bushels for the 2021/22 marketing year and 15.9 million bushels for the 2022/23 marketing year. Exports for the same period were down 5 percent from last week at 61.4 million bushels. Corn export sales and commitments were 88 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 89 percent. Across Tennessee, average corn basis (cash price-nearby futures price) weakened or remained unchanged at West, West-Central, North-Central, and Mississippi River elevators and barge points and strengthened at Northwest elevators and barge points.
Overall, basis for the week ranged from 35 under to 25 over, with an average of 2 under the May futures at elevators and barge points. May 2022 corn futures closed at $7.90, up 22 cents since last Friday. For the week, May 2022 corn futures traded between $7.64 and $7.93. May/ Jul and May/Dec future spreads were -7 and -55 cents. July 2022 corn futures closed at $7.83, up 23 cents since last Friday.
Nationally, the Crop Progress report estimated corn planted at 2 percent compared to 2 percent last week, 4 percent last year, and a 5- year average of 3 percent. In Tennessee, corn planted was estimated at 4 percent compared to 10 percent last year and a 5-year average of 9 percent. New crop cash prices at elevators and barge points ranged from $6.83 to $7.50. December 2022 corn futures closed at $7.35, up 19 cents since last Friday. Downside price protection could be obtained by purchasing a $7.40 December 2022 Put Option costing 79 cents establishing a $6.61 futures floor.
Soybeans
Net sales reported by exporters were down compared to last week with net sales of 20.2 million bushels for the 2021/22 marketing year and 16.8 million bushes for the 2022/23 marketing year. Exports for the same period were down 3 percent compared to last week at 29.6 million bushels. Soybean export sales and commitments were 98 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 94 percent. Across Tennessee, average soybean basis strengthened at Northwest elevators and barge points and weakened or remained unchanged at West, West-Central, North-Central, and Mississippi River elevators and barge points. Basis ranged from 12 under to 30 over, with an average basis of 7 over the May futures contract. May 2022 soybean futures closed at $16.82, down 7 cents since last Friday. For the week, May 2022 soybean futures traded between $16.51 and $16.97.
May/Jul and May/Nov future spreads were -17 and -181 cents. May 2022 soybean-to-corn price ratio was 2.13 at the end of the week. July 2022 soybean futures closed at $16.65, down 3 cents since last Friday.
Nov/Dec 2022 soybean-to-corn price ratio was 2.04 at the end of the week. New crop cash soybean prices at elevators and barge points ranged from $14.59 to $15.42. November 2022 soybean futures closed at $15.01, up 6 cents since last Friday. Downside price protection could be achieved by purchasing a $15.20 November 2022 Put Option which would cost 112 cents and set a $14.08 futures floor.
Cotton
Net sales reported by exporters were down compared to last week with net sales of 59,300 bales for the 2021/22 marketing year – a marketing year low – and 132,000 bales for the 2022/23 marketing year. Exports for the same period were down 27 percent compared to last week at 333,800 bales. Upland cotton export sales were 103 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 100 percent. Delta upland cotton spot price quotes for April 13 were 142.77 cents/lb. (41-4-34) and 145.02 cents/lb. (31-3-35). May 2022 cotton futures closed at 141.98 cents, up 9.57 cents since last Friday. For the week, May 2022 cotton futures traded between 131.58 and 146.14 cents. May/Jul and May/Dec cotton futures spreads were -1.27 cents and -19.5 cents. July 2022 cotton futures closed at 140.71 cents, up 9.65 cents since last Friday.
Nationally, the Crop Progress report estimated cotton planted at 7 percent compared to 4 percent last week, 8 percent last year, and a 5- year average of 7 percent. December 2022 cotton futures closed at 122.48 cents, up 7 cents since last Friday. Downside price protection could be obtained by purchasing a 123 cent December 2022 Put Option costing 13.03 cents establishing a 109.97 cent futures floor.
Wheat
Wheat net sales reported by exporters were down compared to last week with net sales of 3.5 million bushels for the 2021/22 marketing year and 8.3 million bushels for the 2022/23 marketing year. Exports for the same period were up 10 percent from last week at 12.5 million bushels. Wheat export sales were 91 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 102 percent. Wheat cash prices at elevators and barge points ranged from $10.11 to $10.44. May 2022 wheat futures closed at $10.96, up 45 cents since last Friday. May 2022 wheat futures traded between $10.55 and $11.27 this week. May wheat-to-corn price ratio was 1.39. May/Jul and May/Sep future spreads were 8 and 5 cents.
Nationally, the Crop Progress report estimated winter wheat condition at 32 percent good-to-excellent and 36 percent poor-to-very poor; winter wheat headed at 5 percent compared to 4 percent last week, 5 percent last year, and a 5-year average of 6 percent; and spring wheat planted at 6 percent compared to 3 percent last week, 10 percent last year, and a 5-year average of 5 percent. In Tennessee, winter wheat condition was estimated at 70 percent good-to-excellent and 5 percent poor-to-very poor; and winter wheat jointing at 57 percent compared to 33 percent last week, 62 percent last year, and a 5-year average of 68 percent. New crop wheat cash prices at elevators and barge points ranged from $10.11 to $10.88. July 2022 wheat futures closed at $11.04, up 45 cents since last Friday. Downside price protection could be obtained by purchasing an $11.05 July 2022 Put Option costing 76 cents establishing a $10.29 futures floor. September 2022 wheat futures closed at $11.01, up 45 cents since last Friday. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee