Wheat Prices Being Affected By Geopolitical Issues Revolving Around Russia’s Invasion Of Ukraine
DR. AARON SMITH
KNOXVILLE, TENNESSEE
Another interesting week in commodity markets as traders continue to balance global macro-economic concerns and fundamental supply and demand considerations. Cotton continues to take the brunt of the concerns regarding inflation and fears of an extended recession, although all commodities are being influenced. Wheat prices are being affected by geopolitical issues revolving around Russia’s invasion of Ukraine. Soybean traders are closely watching Brazil’s planting progress and projected weather forecasts for an anticipated record crop. Corn prices are following U.S. crop production estimates as harvest continues to progress.
With a tremendous amount of uncertainty producers need to sharpen their pencils to determine a path forward. Producers need to determine the amount of the 2022 crop currently priced and the quantity that can be stored. This will allow producers to make decisions regarding how to manage risk and bring the remainder of the crop to market. These are not easy decisions in the current market environment, as futures markets continue to be very volatile and transportation issues due to low water levels, rail disruptions, and trucking scarcity continue to plague supply chains. Tennessee producers that can extend the marketing window, through storage, have the potential to recoup the benefits of on-demand sales to terminal markets, however this does not mitigate changes in futures markets. Using a marketing and risk management strategy that protects against downside movements in futures markets while allowing basis appreciation should be fully explored.
Corn
Ethanol production for the week ending September 30 was 0.889 million barrels per day, up 34,000 from the previous week. Ethanol stocks were 21.685 million barrels, down 1.006 million compared to last week. Corn net sales reported by exporters for September 23-29 were 8.9 million bushels for the 2022/23 marketing year. Exports for the same period were up 12 percent at 25.4 million bushels. Corn export sales and commitments were 23 percent of the USDA estimated total annual exports for the 2022/23 marketing year (September 1 to August 31) compared to the previous 5-year average of 34 percent. Nationally, the Crop Progress report estimated corn condition at 52 percent good-to- excellent and 21 percent poor-to-very-poor; corn dented at 96 percent compared to 92 percent last week, 100 percent last year, and a 5-year average of 97 percent; corn mature at 75 percent compared to 58 percent last week, 86 percent last year, and a 5-year average of 75 percent; and corn harvested at 20 percent compared to 12 percent last week, 27 percent last year, and a 5-year average of 22 percent. In Tennessee, corn condition was estimated at 25 percent good-to- excellent and 42 percent poor-to-very poor; corn mature at 96 percent compared to 89 percent last week, 96 percent last year, and a 5-year average of 96 percent; and corn harvested at 64 percent compared to 42 percent last week, 55 percent last year, and a 5-year average of 67 percent. Across Tennessee, average corn basis (cash price-nearby futures price) weakened at West, Mississippi River, Northwest, West- Central, and North-Central elevators and barge points. Overall, basis for the week ranged from 173 under to 10 over, with an average of 63 under the December futures at elevators and barge points. New crop cash prices ranged from $6.53 to $7.07 at elevators and barge points.
December 2022 corn futures closed at $6.83, up 6 cents since last Friday. For the week, December 2022 corn futures traded between $6.71 and $6.91. Downside price protection could be obtained by purchasing a $6.85 December 2022 Put Option costing 26 cents establishing a $6.59 futures floor. Dec/Mar and Dec/Dec future spreads were 8 and -59 cents. March 2023 corn futures closed at $6.91, up 7 cents since last Friday. December 2023 corn futures closed at $6.24, up 8 cents since last Friday.
Soybeans
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 113 under to 50 under, with an average basis of 87 under the November futures contract.
Soybean net sales reported by exporters were 28.6 million bushels for the 2022/23 marketing year. Exports for the same period were up 129 percent at 22.7 million bushels. Soybean export sales and commitments were 48 percent of the USDA estimated total annual exports for the 2022/23 marketing year (September 1 to August 31), compared to the previous 5-year average of 46 percent. Nationally, the Crop Progress report estimated soybean condition at 55 percent good-to-excellent and 16 percent poor-to-very poor; soybeans dropping leaves at 81 percent compared to 63 percent last week, 84 percent last year, and a 5-year average of 79 percent; and soybeans harvested at 22 percent compared to 8 percent last week, 31 percent last year, and a 5-year average of 25 percent. In Tennessee, soybean condition was estimated at 50 percent good-to-excellent and 13 percent poor-to-very poor; soybeans dropping leaves at 75 percent compared to 55 percent last week, 60 percent last year, and a 5-year average of 69 percent; and soybeans harvested at 21 percent compared to 13 percent last week, 14 percent last year, and a 5-year average of 20 percent. Nov/Dec 2022 soybean-to- corn price ratio was 2.00 at the end of the week. November 2022 soybean futures closed at $13.67, up 3 cents since last Friday. For the week, November 2022 soybean futures traded between $13.50 and $13.95. Nov/Jan and Nov/Nov future spreads were 12 and -12 cents.
January 2023 soybean futures closed at $13.79, up 4 cents since last Friday. New crop cash soybean prices at elevators and barge points ranged from $12.63 to $13.69.November 2023 soybean futures closed at $13.55, up 14 cents since last Friday. Downside price protection could be achieved by purchasing a $13.60 November 2023 Put Option which would cost 110 cents and set a $12.50 futures floor. Nov/Dec 2023 soybean-to-corn price ratio was 2.17 at the end of the week.
Cotton
Delta upland cotton spot price quotes for October 7 were 87.23 cents/ lb (41-4-34) and 89.48 cents/lb (31-3-35). Adjusted world price (AWP) was down 5.23 cents at 77.19 cents. Cotton net sales reported by exporters were 121,200 bales for the 2022/23 marketing year and 48,500 bales for the 2023/24 marketing year. Exports for the same period were up 12 percent at 209,600 bales. Upland cotton export sales were 69 percent of the USDA estimated total annual exports for the 2022/23 marketing year (August 1 to July 31), compared to the previous 5-year average of 58 percent. Nationally, the Crop Progress report estimated cotton condition at 31 percent good-to-excellent and 46 percent poor- to-very poor; cotton bolls opening at 77 percent compared to 67 percent last week, 69 percent last year, and a 5-year average of 73 percent; and cotton harvested at 22 percent compared to 15 percent last week, 13 percent last year, and a 5-year average of 17 percent.
In Tennessee, cotton condition was estimated at 56 percent good-to- excellent and 12 percent poor-to-very poor; cotton bolls opening at 69 percent compared to 57 percent last week, 53 percent last year, and a 5-year average of 78 percent; and cotton harvested at 6 percent compared to 2 percent last week, 1 percent last year, and a 5-year average of 10 percent. December 2022 cotton futures closed at 84.23 cents, down 1.11 cents since last Friday. For the week, December 2022 cotton futures traded between 81.55 and 90.52 cents. Dec/Mar and Dec/ Dec cotton futures spreads were -1.57 cents and -8.57 cents. Downside price protection could be obtained by purchasing an 85 cent December 2022 Put Option costing 5.77 cents establishing an 79.23 cent futures floor. March 2023 cotton futures closed at 82.66 cents, down 0.79 cents since last Friday. December 2023 cotton futures closed at 75.66 cents, up 0.81 cents since last Friday.
Wheat
Wheat net sales reported by exporters were 8.4 million bushels for the 2022/23 marketing year. Exports for the same period were up 1 percent at 23.1 million bushels. Wheat export sales were 49 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 56 percent. Wheat cash prices at elevators and barge points ranged from $8.29 to $8.71. December 2022 wheat futures closed at $8.80, down 41 cents since last Friday. December 2022 wheat futures traded between $8.72 and $9.38 this week. December wheat-to-corn price ratio was 1.29. March 2023 wheat futures closed at $8.95, down 37 cents since last Friday. Dec/Mar and Dec/Jul future spreads were 15 and 16 cents.
Nationally, the Crop Progress report estimated winter wheat planted at 40 percent compared to 31 percent last week, 45 percent last year, and a 5-year average of 44 percent; and winter wheat emerged at 15 percent compared to 9 percent last week, 18 percent last year, and a 5-year average of 17 percent. In Tennessee, winter wheat planted was estimated at 11 percent compared to 10 percent last week, 15 percent last year, and a 5-year average of 11 percent; and winter wheat emerged at 5 percent compared to 3 percent last week, 7 percent last year, and a 5-year average of 4 percent. New crop wheat cash prices at elevators and barge points ranged from $8.34 to $8.85. July 2023 wheat futures closed at $8.96, down 16 cents since last Friday. Downside price protection could be obtained by purchasing a $9.00 July 2023 Put Option costing 112 cents establishing a $7.88 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee