Low water levels on the Mississippi River have complicated marketing decisions this year for many Tennessee corn producers
DR. AARON SMITH
KNOXVILLE, TENNESSEE
In Tennessee, holding corn in storage without futures market price protection is a risky endeavor. Low water levels on the Mississippi River have complicated marketing decisions this year for many Tennessee corn producers. Typically, corn prices improve after harvest lows and producers can capture improved cash prices of 60-85 cents above the harvest low, depending on how long corn is held in storage. Futures markets have been volatile and downside risk is prevalent for corn futures prices. Price movements in the futures market are completely out of the producer’s control. Geopolitical events or weather can move prices substantially. On the other hand, corn basis in Tennessee has been weak and is likely to im- prove as we enter 2023, due to the smaller corn crop -- state average yield is currently estimated by USDA NASS at 130 bu/acre -- and strong demand for corn from poultry, ethanol, distilleries, and other end users in the state. Tennessee has a corn deficit meaning more corn is used than produced.
As such, a reasonable risk management strategy would be to remove futures price risk while allowing for basis improvement to increase the final cash selling price. This could be accomplished by selling March corn futures (or use options), currently at $6.70, and allowing the basis to improve. Current average basis at elevators and barge points in Tennessee is reported by USDA AMS at 5 over. Corn end users, such as ethanol and poultry, are often substantially higher than posted basis offerings at elevators and barge points. Using a strategy of securing a futures market price and leaving basis unfixed opens the door to potential cash selling prices above $7.00, assuming normal basis improvements. Although corn yields are down in Tennessee, $7.00 corn plus crop insurance indemnity payments will provide positive returns for many Tennessee producers even with the high cost of production in 2022.
Leaving stored corn unpriced allows profitability to be exposed to the whims of the futures market. Approximately 90% of the final cash price will be determined by movements in the futures markets. When looking for frosting (basis) don’t forget the cake (futures), applies to current corn price risk management in Tennessee.
Corn
Ethanol production for the week ending November 11 was 1.011 million barrels per day, down 40,000 from the previous week. Ethanol stocks were 21.298 million barrels, down 894,000 compared to last week. Corn net sales reported by exporters for November 4-10 were 46 million bushels for the 2022/23 marketing year. Exports for the same period were up 118% compared to last week at 22.2 million bushels. Corn export sales and commitments were 29% 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 45%. Nationally, the Crop Progress report estimated corn harvested at 93% compared to 87% last week, 90% last year, and a 5-year average of 85%. In Tennessee, corn harvested was estimated at 100% compared to 99% last week, 97% last year, and a 5-year average of 99%. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at West, North- west, North-Central, West-Central, and Mississippi River elevators and barge points. Overall, basis for the week ranged from 50 under to 30 over, with an average of 1 under the December futures at elevators and barge points. New crop cash prices ranged from $6.04 to $6.98 at elevators and barge points. December 2022 corn futures closed at $6.67, up 9 cents since last Friday. For the week, December 2022 corn futures traded between $6.52 and $6.75. Dec/Mar and Dec/Dec future spreads were 3 and -57 cents.
March 2023 corn futures closed at $6.70, up 7 cents since last Friday. December 2023 corn futures closed at $6.10, up 1 cent since last Friday. Downside price protection could be obtained by purchasing a $6.20 December 2023 Put Option costing 59 cents establishing a $5.61 futures floor.
Soybeans
Across Tennessee, average soybean basis strengthened or remained unchanged at West, Northwest, West-Central, North- Central, and Mississippi River elevators and barge points. Basis ranged from 40 under to 38 over, with an average basis of 6 over the January futures contract. Soybean net weekly sales reported by exporters were 111.3 million bushels for the 2022/23 marketing year. Exports for the same period were down 24% compared to last week at 76.5 million bushels. Soybean export sales and commitments were 65% 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 61%. Nationally, the Crop Progress report estimated soybeans harvested at 96% compared to 94% last week, 91% last year, and a 5-year average of 91%. In Tennessee, soybeans harvested were estimated at 87% compared to 80% last week, 75% last year, and a 5-year average of 77%. January 2023 soybean futures closed at $14.28, down 22 cents since last Friday. For the week, January 2023 soybean futures traded between $14.06 and $14.64. Jan/Mar and Jan/Nov future spreads were 5 and -55 cents.
March 2023 soybean futures closed at $14.33, down 20 cents since last Friday. Cash soybean prices at elevators and barge points ranged from $14.32 to $15.00. November 2023 soybean futures closed at $13.73, down 14 cents since last Friday. Down- side price protection could be achieved by purchasing a $13.80 November 2023 Put Option which would cost 96 cents and set a $12.84 futures floor. Nov/Dec 2023 soybean-to-corn price ratio was 2.35 at the end of the week.
Cotton
Delta upland cotton spot price quotes for November 17 were 86.53 cents/lb. (41-4-34) and 88.78 cents/lb. (31-3-35). Adjusted world price (AWP) was up 1.04 cents at 77.78 cents. Cotton net weekly sales reported by exporters were 25,100 bales for the 2022/23 marketing year and 8,100 bales for the 2023/24 marketing year. Exports for the same period were up 69% compared to last week at 183,000 bales. Upland cotton export sales were 75% 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 66%. Nationally, the Crop Progress report estimated cotton harvested at 71% compared to 62% last week, 64% last year, and a 5-year average of 63%. In Tennessee, cotton harvested was estimated at 83% compared to 74% last week, 69% last year, and a 5-year average of 75%. December 2022 cotton futures closed at 85.16 cents, down 3.04 cents since last Friday. For the week, December 2022 cotton futures traded between 84.18 and 91.85 cents. Dec/Mar and Dec/Dec cotton futures spreads were -1.38 cents and -6.2 cents.
March 2023 cotton futures closed at 83.78 cents, down 2.55 cents since last Friday. December 2023 cotton futures closed at 78.96 cents, down 0.6 cents since last Friday. Downside price protection could be obtained by purchasing a 79 cent December 2023 Put Option costing 10.3 cents establishing a 69.7 cent futures floor.
Wheat
Wheat net weekly sales reported by exporters were 10.6 million bushels for the 2022/23 marketing year. Exports for the same period were down 22% compared to last week at 4.4 million bushels. Wheat export sales were 61% of the USDA estimated to- tal annual exports for the 2022/23 marketing year (June 1 to May 31), compared to the previous 5-year average of 67%. Wheat cash prices at elevators and barge points ranged from $7.56 to $8.22. December 2022 wheat futures closed at $8.03, down 10 cents since last Friday. December 2022 wheat futures traded between $7.93 and $8.43 this week. December wheat-to-corn price ratio was 1.20. March 2023 wheat futures closed at $8.22, down 13 cents since last Friday. Dec/Mar and Dec/Jul future spreads were 19 and 32 cents.
Nationally, the Crop Progress report estimated winter wheat condition at 32% good-to-excellent and 32% poor-to-very poor; winter wheat planted at 96% compared to 92% last week, 94% last year, and a 5-year average of 93%; and winter wheat emerged at 81% compared to 73% last week, 80% last year, and a 5-year average of 81%. In Tennessee, winter wheat condition was 50% good-to-excellent and 5% poor-to-very poor; winter wheat planted at 85% compared to 80% last week, 80% last year, and a 5-year average of 77%; and winter wheat emerged at 66% compared to 56% last week, 61% last year, and a 5-year average of 58%. New crop wheat cash prices at elevators and barge points ranged from $7.82 to $8.38. July 2023 wheat futures closed at $8.35, down 17 cents since last Friday. Downside price protection could be obtained by purchasing an $8.40 July 2023 Put Option costing 83 cents establishing a $7.57 futures floor. ∆