Harvest Is Almost Complete

DR. AARON SMITH

KNOXVILLE, TENNESSEE

Harvest is almost complete. Many farmers will take a well-deserved post-harvest break before focusing on marketing the remainder of the 2023 crop and planning for the 2024 crop. However, between now and the
New Year it is important to consider how to manage price risk for both the 2023 crop held in storage and the upcoming 2024 crop. 

Holding crops in storage unpriced can be risky. In Tennessee, basis improvements usually contribute more to higher cash prices than increased futures prices between the end of harvest and spring. Particularly in the past two years, when basis offerings have been dramatically lower at harvest due to low water levels on the Mississippi River. Additionally, global production and global economic and geopolitical uncertainty create the potential for additional downside price risk in the futures market. Securing a futures price for crops held in storage should be considered using a deferred futures contract. An additional consideration this fall, and winter, is elevated storage costs. Average interest rates on agricultural operating loans are close to 8%. For those producers with outstanding operating loans this cost needs to be considered. A $5.00 bushel of corn at 8% interest costs 3.33 cents per month. In other words, to hold that bushel of corn until March (5-months) will cost 16.7 cents per bushel in interest alone. Can the interest and other storage costs be made up with basis and futures market price improvements? If not, cash sales may be more beneficial. 

For the 2024 crop, many producers will purchase inputs before the New Year as part of a tax management plan. Prepaying inputs, such as fertilizer, can assist in reducing taxes and position the producer to avoid potentially higher fertilizers prices in the spring. However, producers should consider the risk in purchasing inputs without securing some level of output price protection. If crop prices fall dramatically after input purchases occur profit margins can be severely diminished. A risk management strategy that works well to bridge the price risk gap, until crop insurance prices are determined, is purchasing a harvest 2024 out of the money put option. For example, on October 27 a $4.80 December 2024 put option could be purchased for 28 cents setting a futures price floor of $4.52. This allows the producer downside protection until additional price protection is obtained through crop insurance. If prices are above the strike price, then the option can be sold, and a substantial portion of the premium recovered. If prices are lower than the strike, then the option could be exercised or maintained as additional futures market price protection. The strike price can be selected to meet an individual operation’s preference. 

Corn

Ethanol production for the week ending October 20 was 1.040 million barrels per day, up 5,000 from the previous week. Ethanol stocks were 21.398 million barrels, up 286,000 barrels compared to last week. Corn net sales reported by exporters for October 13-19 were net sales of 53.2 million bushels for the 2023/24 marketing year and 0.6 million bushels for the 2024/25 marketing year. Exports for the same period were down 6% compared to last week at 19.0 million bushels – a marketing year low. Corn export sales and commitments were 34% of the USDA estimated total annual exports for the 2023/24 marketing year (September 1 to August 31) compared to the previous 5-year average of 41%. Across Tennessee, average corn basis (cash price- nearby futures price) strengthened or remained unchanged at West, Northwest, North-Central, West-Central, and Mississippi River elevators and barge points. Overall, basis for the week ranged from 90 under to 10 over, with an average of 33 under the December futures at elevators and barge points. 

The Crop Progress report estimated corn harvested at 59% compared to 45% last week, 59% last year, and a 5-year average of 54%. In Tennessee, corn harvested was estimated at 88% compared to 83% last week, 93% last year, and a 5-year average of 91%. Cash prices ranged from $4.05 to $4.91 at elevators and barge points. December 2023 corn futures closed at $4.80, down 15 cents since last Friday. For the week December 2023 corn futures traded between $4.76 and $4.97. Dec/Mar and Dec/May future spreads were 15 and 23 cents. Downside price protection could be obtained by purchasing a $4.85 December 2023 Put Option costing 12 cents establishing a $4.73 futures floor. March 2024 corn futures closed at $4.95, down 14 cents since last Friday. May 2024 corn futures closed at $5.03, down 13 cents since last Friday. 

Soybeans

Across Tennessee average soybean basis strengthened or remained unchanged at Northwest, North-Central, West-Central, West, and Mississippi River elevators and barge points. Basis ranged from 75 to 2 under the November futures contract, with an average basis at the end of the week of 31 under. Soybean net weekly sales reported by exporters were net sales of 50.6 million bushels for the 2023/24 marketing year – a marketing year high. Exports for the same period were up 20% compared to last week at 87.6 million bushels – a marketing year high. Soybean export sales and commitments were 47% of the USDA estimated total annual exports for the 2023/24 marketing year (September 1 to August 31), compared to the previous 5-year average of 56%. 

The Crop Progress report estimated soybeans harvested at 76% compared to 62% last week, 78% last year, and a 5-year average of 67%. In Tennessee, the Crop Progress report estimated soybean condition at 75% good-to-excellent and 6% poor-to-very poor; and soybeans harvested at 60% compared to 46% last week, 59% last year, and a 5-year average of 53%. November 2023 soybean futures closed at $12.97, down 5 cents since last Friday. For the week, November 2023 soybean futures traded between $12.77 and $13.04. Cash soybean prices at elevators and barge points ranged from $12.07 to $12.91. Nov/Dec 2023 soybean-to-corn price ratio was 2.70 at the end of the week. Nov/Jan and Nov/Nov future spreads were 22 and -23 cents. March soybean-to-corn price ratio was 2.57 at the end of the week. January 2024 soybean futures closed at $13.19, down 1 cent since last Friday. November 2024 soybean futures closed at $12.74, up 7 cents since last Friday. Downside price protection could be achieved by purchasing a $12.80 November 2024 Put Option which would cost 90 cents and set a $11.90 futures floor. 

Cotton

North Delta upland cotton spot price quotes for October 26 were 81.59 cents/lb (41-4-34) and 83.84 cents/lb (31-3-35). Adjusted world price (AWP) was down 1.1 cents at 68.72 cents. Cotton net weekly sales reported by exporters were 186,100 bales for the 2023/24 marketing year. Exports for the same period were down 11% compared to last week at 98,000 bales – a marketing year low. Upland cotton export sales were 53% of the USDA estimated total annual exports for the 2023/24 marketing year (August 1 to July 31), compared to the previous 5-year average of 66%. 

The Crop Progress report estimated cotton condition at 29% good-to-excellent and 43% poor-to-very poor; cotton bolls opening at 90% compared to 87% last week, 92% last year, and a 5-year average of 91%; and cotton harvested at 41% compared to 33% last week, 44% last year, and a 5-year average of 39%. In Tennessee, the Crop Progress report estimated cotton condition at 76% good-to-excellent and 10% poor-to-very poor; cotton bolls opening at 96% compared to 91% last week, 96% last year, and a 5-year average of 95%; and cotton harvested at 43% compared to 25% last week, 48% last year, and a 5-year average of 45%. December 2023 cotton futures closed at 84.38 cents, up 1.98 cents since last Friday. For the week, December 2023 cotton futures traded between 81.68 and 85.44 cents. Downside price protection could be obtained by purchasing an 85 cent December 2023 Put Option costing 1.75 cents establishing an 83.25 cent futures floor. March 2024 cotton futures closed at 86.13 cents, up 1.3 cents since last Friday. May 2023 cotton futures closed at 86.98 cents, up 1.3 cents since last Friday. Dec/Mar and Dec/May cotton futures spreads were 1.75 cents and 2.6 cents. 

Wheat 

Wheat net weekly sales reported by exporters were net sales of 13.4 million bushels for the 2023/24 marketing year and 0.6 million bushels for the 2024/25 marketing year. Exports for the same period were down 66% compared to last week at 4.8 million bushels – a marketing year low. Wheat export sales were 58% of the USDA estimated total annual exports for the 2023/24 marketing year (June 1 to May 31), compared to the previous 5-year average of 61%. Wheat cash prices at elevators and barge points ranged from $4.84 to $5.68. December 2023 wheat futures closed at $5.75, down 11 cents since last Friday. December 2023 wheat futures traded between $5.63 and $5.95 this week. December wheat-to-corn price ratio was 1.20. Dec/ Mar and Dec/Jul future spreads were 27 and 58 cents. March 2024 wheat futures closed at $6.02, down 11 cents since last Friday. 

The Crop Progress report estimated winter wheat planted at 77% compared to 68% last week, 78% last year, and a 5-year average of 78%; and winter wheat emerged at 53% compared to 39% last week, 47% last year, and a 5-year average of 53%. In Tennessee, winter wheat condition was estimated at 66% good-to-excellent and 10% poor-to-very poor; winter wheat planted at 35% compared to 26% last week, 44% last year, and a 5-year average of 43%; and winter wheat emerged at 13% compared to 9% last week, 19% last year, and a 5-year average of 22%. July 2024 wheat futures closed at $6.33, down 12 cents since last Friday. Downside price protection could be obtained by purchasing a $6.40 July 2024 Put Option costing 58 cents establishing a $5.82 futures floor. New crop wheat cash prices at elevators and barge points ranged from $5.99 to $6.21. ∆

DR. AARON SMITH: University of Tennessee