Overall The Outlook Remains Bullish For Corn, Soybean, Wheat, And Cotton Prices
DR. AARON SMITH
KNOXVILLE, TENN.
April saw large gains for harvest futures contracts for corn, soybeans, wheat, and cotton. December corn opened April at $4.83 ½ and closed at $5.62, up 78 ½ cents; November soybeans opened at $12.68 and closed at $13.41 ¾, up 73 ¾ cents; July wheat opened at $6.20 and closed at $7.34 ¾, up $1.14 ¾; and December cotton opened at 80 cents and closed at 85.06, up 5.06 cents. The dramatic increase in prices can be attributed to reduced/limited ending stocks, drought concerns – domestically and in South America, strong export sales, and domestic demand. The dramatic price increases will likely bring additional volatility over the next couple of months as markets attempt to decipher potential drought impacts and strength of demand.
Overall the outlook remains bullish for corn, soybean, wheat, and cotton prices. Producers may want to consider taking additional downside price risk off the table by using marketing tools like out-of- the-money put options. This will allow producers to continue to participate in price rallies, but set a floor well above crop insurance prices.
Planting spring crops is progressing, but several regions have drought conditions that could affect production. The most severe drought affected areas (excluding parts of the West) include: Texas – 86.5 percent abnormally dry or worse (25 percent in extreme or exceptional drought); North Dakota – 100 percent abnormally dry or worse (82.7 percent in extreme drought); and Colorado – 98.8 percent abnormally dry or worse (32.1 percent in extreme or exceptional drought).
According to the US Drought Monitor, moderate to severe drought has been expanding in Iowa, Minnesota, Wisconsin, Michigan, Illinois, Indiana, and Ohio. The expanding drought could cause prices to continue their upward trajectory.
CME group completed their bi-annual review of daily price limits for grain and oilseed futures traded on the Chicago Board of Trade. Daily limits will be expanded for corn – 25 cents to 40 cents; soybeans – 70 cents to $1.00; and wheat – 40 cents to 45 cents. Expanded limits (the day after a limit move is made) will now be 60 cents for corn; $1.50 for soybeans; and 70 cents for wheat. The new daily price limits will be effective May 2, 2021.
Corn
Ethanol production for the week ending April 23 was 0.945 million barrels per day, up 4,000 from the previous week. Ethanol stocks were 19.736 million barrels, down 0.711 million barrels compared to last week. Corn net sales reported by exporters for April 16-22, 2021 were up compared to last week with net sales of 20.5 million bushels for the 2020/21 marketing year and 21.8 million bushels for the 2021/22 marketing year. Exports for the same time period were up 19 percent from last week at 75.4 million bushels. Corn export sales and commitments were 100 percent of the USDA estimated total exports for the 2020/21 marketing year (September 1 to August 31) compared to the previous 5-year average of 88 percent. Across Tennessee, average corn basis (cash price-nearby futures price) weakened or remained unchanged at West, Mississippi River, North-Central, West-Central, and Northwest elevators and barge points. Overall, basis for the week ranged from 17 under to 36 over, with an average of 8 over the May futures at elevators and barge points. May 2021 corn futures closed at $7.40, up 85 cents since last Friday. For the week, May 2021 corn futures traded between $6.61 and $7.46. May/Jul and May/Dec future spreads were -67 and -177 cents. July 2021 corn futures closed at $6.73, up 41 cents since last Friday.
Nationally, this week’s Crop Progress report estimated corn planted at 17 percent compared to 8 percent last week, 24 percent last year, and a 5-year average of 20 percent; and corn emerged at 3 percent compared to 2 percent last week, 3 percent last year, and a 5-year average of 4 percent. In Tennessee, corn planted was estimated at 48 percent compared to 26 percent last week, 33 percent last year, and a 5-year average of 44 percent; and corn emerged at 18 percent compared to 5 percent last week, 12 percent last year, and a 5-year average of 15 percent. In Tennessee, new crop cash corn prices at elevators and barge points ranged from $5.36 to $5.92. December 2021 corn futures closed at $5.63, up 13 cents since last Friday. Downside price protection could be obtained by purchasing a $5.70 December 2021 Put Option costing 66 cents establishing a $5.04 futures floor.
Soybeans
Net sales reported by exporters were up compared to last week with net sales of 10.7 million bushels for the 2020/21 marketing year and 16.1 million bushels for the 2021/22 marketing year. Exports for the same period were up 50 percent compared to last week at 12.5 million bushels. Soybean export sales and commitments were 99 percent of the USDA estimated total annual exports for the 2020/21 marketing year (September 1 to August 31), compared to the previous 5-year average of 93 percent. Across Tennessee, average soybean basis strengthened or remained unchanged at West, West-Central, North-Central, and Mississippi River, and weakened at Northwest elevators and barge points. Basis ranged from 19 under to 30 over the May futures contract. Average basis at the end of the week was 11 over the May futures contract. May 2021 soybean futures closed at $15.71, up 32 cents since last Friday. For the week, May 2021 soybean futures traded between $15.24 and $16.08. May/Jul and May/Nov future spreads were -37 and -232 cents. May 2021 soybean-to-corn price ratio was 2.12 at the end of the week. July 2021 soybean futures closed at $15.34, up 18 cents since last Friday.
Nationally, this week’s Crop Progress report estimated soybeans planted at 8 percent compared to 3 percent last week, 7 percent last year, and a 5-year average of 5 percent. In Tennessee, soybeans planted were estimated at 8 percent compared to 2 percent last week, 7 percent last year, and a 5-year average of 4 percent. In Tennessee, new crop cash soybean prices at elevators and barge points ranged from $13.12 to $13.87. November 2021 soybean futures closed at $13.39, down 2 cents since last Friday. Downside price protection could be achieved by purchasing a $13.40 November 2021 Put Option which would cost 88 cents and set a $12.52 futures floor. Nov/Dec 2021 soybean-to-corn price ratio was 2.38 at the end of the week.
Cotton
Net sales reported by exporters were down compared to last week with net sales of 77,100 bales for the 2020/21 marketing year and 16,300 bales for the 2021/22 marketing year. Exports for the same time period were up 4 percent compared to last week at 341,900 bales. Upland cotton export sales were 104 percent of the USDA estimated total annual exports for the 2020/21 marketing year (August 1 to July 31), compared to the previous 5-year average of 102 percent. Delta upland cotton spot price quotes for April 29 were 84.29 cents/lb (41-4-34) and 86.54 cents/lb (31-3-35). Adjusted world price increased 3.22 cents to 73.71 cents. May 2021 cotton futures closed at 87.43, down 0.08 cents since last Friday. For the week, May 2021 cotton futures traded between 85.89 and 90.07 cents. May/Jul and May/Dec cotton futures spreads were 0.65 cents and -2.37 cents. July 2021 cotton futures closed at 88.08 cents, down 0.72 cents since last Friday.
Nationally, this week’s Crop Progress report estimated cotton planted at 12 percent compared to 11 percent last week, 13 percent last year, and a 5-year average of 11 percent. In Tennessee, cotton planted was estimated at 1 percent compared to 0 percent last week, 2 percent last year, and a 5-year average of 2 percent December 2021 cotton futures closed at 85.06 cents, up 0.13 cents since last Friday. Downside price protection could be obtained by purchasing an 86 cent December 2021 Put Option costing 8.44 cents establishing a 77.56 cent futures floor.
Wheat
Wheat net sales reported by exporters were down compared to last week with net sales of 8.2 million bushels for the 2020/21 marketing year and net sales of 8.7 million bushels for the 2021/22 marketing year. Exports for the same time period were down 2 percent from last week at 20.2 million bushels. Wheat export sales were 96 percent of the USDA estimated total annual exports for the 2020/21 marketing year (June 1 to May 31), compared to the previous 5-year average of 104 percent. In Tennessee, spot wheat prices ranged from $7.29 to $7.75. May 2021 wheat futures closed at $7.42, up 32 cents since last Friday. May 2021 wheat futures traded between $7.12 and $7.73 this week. May wheat-to- corn price ratio was 1.01. May/Jul and May/Sep future spreads were -8 and -10 cents.
Nationally, the Crop Progress report estimated winter wheat condition at 49 percent good-to-excellent and 19 percent poor to very poor; winter wheat headed at 17 percent compared to 10 percent last week, 20 percent last year, and a 5-year average of 23 percent; spring wheat planted at 28 percent compared to 19 percent last week, 13 percent last year, and a 5-year average of 19 percent; and spring wheat emerged at 7 percent compared to 4 percent last year and a 5- year average of 5 percent. In Tennessee, winter wheat condition was estimated at 74 percent good-to-excellent and 3 percent poor to very poor; winter wheat headed at 33 percent compared to 10 percent last week, 53 percent last year, and a 5-year average of 41 percent; and winter wheat jointing at 88 percent compared to 79 percent last week, 94 percent last year, and a 5-year average of 92 percent. In Tennessee, new crop wheat cash contracts ranged from $7.06 to $7.64. July wheat-to-corn futures price ratio was1.09. July 2021 wheat futures closed at $7.34, up 22 cents since last Friday. Downside price protection could be obtained by purchasing a $7.35 July 2021 Put Option costing 44 cents establishing a $6.91 futures floor. September 2021 wheat futures closed at $7.32, up 20 cents since last Friday. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee