Drought In Tennessee’s Primary Corn And Soybean Producing Counties Continues
DR. AARON SMITH
KNOXVILLE, TENNESSEE
This summer drought has steadily moved west, from Texas and Oklahoma, to now encompasses Arkansas, Missouri, Louisiana, Mississippi, Kentucky, and Tennessee. The Northwestern Corn Belt and Eastern Corn Belt have fared much better, in terms of precipitation, this summer.
It is challenging to get an aggregated estimate of the U.S. crop with a wide range of outcomes potentially occurring across key production areas. Markets are currently balancing if states with good overall crop condition ratings are sufficient to offset losses in the drought afflicted South. Unfortunately, for Southern corn producers the futures market has been trending lower (December corn has fallen from $7.50 on June 17th to $5.75 on July 21st), indicating production estimates across the primary corn regions, while mixed, still gives hope for the USDA target of a greater than 14.5-billion-bushel crop based on 81.9 million acres or an average national yield of 177 bu/ acre. However, if drought continues to creep into Iowa, Illinois, and Indiana, as evidenced by the July 19th U.S. Drought Monitor, markets could reverse course rapidly. There remains a great deal of uncertainty in 2022 production, and it is likely that futures market volatility will continue based on revised U.S. crop production estimates, in addition to the broader macroeconomic events that continue to influence agricultural markets.
Drought in Tennessee’s primary corn and soybean producing counties continues. According to the U.S. drought monitor the area in Tennessee in some form of drought decreased from 64 percent to 60 percent. However, the area in severe drought increased from 4 to 20 percent.
Some relief was found in East and Middle Tennessee, however almost all West Tennessee is now classified as being in extreme drought. Now is the time for Tennessee producers to evaluate their investment in the 2022 crop, current production projections, sales-to-date, storage capacity, and contact their crop insurance agent to discuss a path forward. For those Tennessee producers outside of drought afflicted areas, there will likely be opportunities to take advantage of some very beneficial basis offerings this fall and winter. Financial management and marketing are going to be the key in the current market environment.
Corn
Ethanol production for the week ending July 15 was 1.034 million barrels per day, up 29,000 from the previous week. Ethanol stocks were 23.553 million barrels, down 53,000 compared to last week. Corn net sales reported by exporters for July 8-14, 2022, were up compared to last week with net sales of 1.3 million bushels for the 2021/22 marketing year and net sales of 22.4 million bushels for the 2022/23 marketing year. Exports for the same period were up 21 percent from last week at 43.6 million bushels. Corn export sales and commitments were 97 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 102 percent. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Northwest, West-Central, North-Central, and Mississippi River elevators and barge points and weakened at West elevators and barge points. Overall, basis for the week ranged from 30 to 85 over, with an average of 58 over the September futures at elevators and barge points. September 2022 corn futures closed at $5.64, down 40 cents since last Friday. For the week, September 2022 corn futures traded between $5.61 and $6.23. Sep/Dec and Sep/Mar future spreads were 0 and 7 cents.
Nationally, the Crop Progress report estimated corn condition at 64 percent good-to-excellent and 11 percent poor-to-very-poor; corn silking at 37 percent compared to 15 percent last week, 52 percent last year, and a 5-year average of 48 percent; and corn dough at 6 percent compared to 2 percent last week, 7 percent last year, and a 5- year average of 7 percent. In Tennessee, corn condition was estimated at 40 percent good-to-excellent and 26 percent poor-to-very poor; corn silking at 82 percent compared to 67 percent last week, 78 percent last year, and a 5-year average of 84 percent; and corn dough at 31 percent compared to 11 percent last week, 31 percent last year, and a 5-year average of 36 percent. New crop cash prices at elevators and barge points ranged from $5.54 to $6.22. December 2022 corn futures closed at $5.64, down 39 cents since last Friday. Downside price protection could be obtained by purchasing a $5.70 December 2022 Put Option costing 44 cents establishing a $5.26 futures floor. March 2023 corn futures closed at $5.71, down 39 cents since last Friday.
Soybeans
Net sales reported by exporters were up compared to last week with net sales of 7.5 million bushels for the 2021/22 marketing year and 9.4 million bushels for the 2022/23 marketing year. Exports for the same period were up 13 percent compared to last week at 18.4 million bushels. Soybean export sales and commitments were 101 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 103 percent. Across Tennessee, average soybean basis weakened or remained unchanged at West, Northwest, West-Central, North-Central, and Mississippi River elevators and barge points. Basis ranged from 44 under to 105 over, with an average basis of 11 over the August futures contract. August 2022 soybean futures closed at $14.34, down 32 cents since last Friday. For the week, August 2022 soybean futures traded between $14.07 and $15.13. Aug/Sep and Aug/Nov future spreads were -107 and -119 cents. September 2022 soybean-to-corn price ratio was 2.35 at the end of the week. September 2022 soybean futures closed at $13.27, down 32 cents since last Friday.
Nationally, the Crop Progress report estimated soybean condition at 61 percent good-to-excellent and 10 percent poor-to-very poor; soybeans blooming at 48 percent compared to 32 percent last week, 61 percent last year, and a 5-year average of 55 percent; and soybeans setting pods at 14 percent compared to 6 percent last week, 21 percent last year, and a 5-year average of 19 percent. In Tennessee, soybean condition was estimated at 39 percent good-to-excellent and 23 percent poor-to-very poor; soybeans blooming at 53 percent compared to 34 percent last week, 46 percent last year, and a 5-year average of 52 percent; and soybean setting pods 20 percent compared to 7 percent last week, 22 percent last year, and a 5-year average of 22 percent.
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 $12.75 to $14.09. November 2022 soybean futures closed at $13.15, down 27 cents since last Friday. Downside price protection could be achieved by purchasing a $13.20 November 2022 Put Option which would cost 65 cents and set a $12.55 futures floor.
Cotton
Net sales reported by exporters were up compared to last week with net sales of 54,100 bales for the 2021/22 marketing year and 113,200 bales for the 2022/23 marketing year. Exports for the same period were up 6 percent compared to last week at 330,800 bales. Upland cotton export sales were 110 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 112 percent. Delta upland cotton spot price quotes for July 21 were 108.6 cents/lb (41-4-34) and 110.85 cents/lb (31-3-35). Adjusted world price (AWP) was down 5.14 cents at 103.96 cents.
Nationally, the Crop Progress report estimated cotton condition at 38 percent good-to-excellent and 27 percent poor-to-very poor; cotton squaring at 74 percent compared to 57 percent last week, 67 percent last year, and a 5-year average of 70 percent; and cotton setting bolls at 31 percent compared to 22 percent last week, 22 percent last year, and a 5-year average of 27 percent. In Tennessee, cotton condition was estimated at 37 percent good-to-excellent and 32 percent poor-to-very poor; cotton squaring at 81 percent compared to 65 percent last week, 69 percent last year, and a 5-year average of 70 percent; and cotton setting bolls at 35 percent compared to 22 percent last week, 17 percent last year, and a 5-year average of 27 percent.
December 2022 cotton futures closed at 90.89 cents, up 2.18 cents since last Friday. For the week, December 2022 cotton futures traded between 88.8 and 94.85 cents. Dec/Mar and Dec/May cotton futures spreads were -3.59 cents and -5.29 cents. Downside price protection could be obtained by purchasing a 91 cent December 2022 Put Option costing 8.53 cents establishing a 82.47 cent futures floor. March 2023 cotton futures closed at 87.3 cents, up 2.45 cents since last Friday. May 2023 cotton futures closed at 85.6 cents, up 2.43 cents since last Friday.
Wheat
Wheat net sales reported by exporters were down compared to last week at 18.8 million bushels for the 2022/23 marketing year. Exports for the week were down 47 percent compared to last week at 5.2 million bushels. Wheat export sales were 35 percent of the USDA estimated total annual exports for the 2022/23 marketing year (June 1 to May 31), compared to the previous 5-year average of 35 percent.
Nationally, the Crop Progress report estimated winter wheat harvested at 70 percent compared to 63 percent last week, 71 percent last year, and a 5-year average of 71 percent; spring wheat condition at 71 percent good-to-excellent and 6 percent poor-to-very poor; and spring wheat headed at 68 percent compared to 44 percent last week, 91 percent last year, and a 5-year average of 90 percent. Wheat cash prices at elevators and barge points ranged from $7.46 to $8.03. September 2022 wheat futures closed at $7.59, down 17 cents since last Friday. September 2022 wheat futures traded between $7.54 and $8.43 this week. September wheat-to-corn price ratio was 1.35. Sep/Dec and Sep/Jul future spreads were 18 and 37 cents. December 2022 wheat futures closed at $7.77, down 17 cents since last Friday. July 2023 wheat futures closed at $7.96, down 14 cents since last Friday. Downside price protection could be obtained by purchasing an $8.00 July 2023 Put Option costing 102 cents establishing a $6.98 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee