As Harvest Progresses Producers Will Consider Planting Wheat
DR. AARON SMITH
KNOXVILLE, TENN.
As corn, soybean, and cotton harvest progresses, Mid-South producers will consider planting wheat. Three factors of primary importance are: 1) weather; 2) July wheat futures prices or harvest contract prices; and 3) input costs. Weather will dictate acres that can be planted and affect crop progress but is largely outside the producer’s control.
As of September 24, July wheat futures prices were above the 85th percentile of prices dating back to January 2000 or for the past 20+ years prices were above $6.90/bu about 15 percent of the time. So, with July 2022 futures at $7.15 there is a price incentive to plant wheat this fall. However, input prices are up substantially compared to recent years. For example, fertilizer prices are up 55 percent to 73 percent compared to the same week last year. Additionally, there are fewer risk management tools to manage input price risk than there are to manage output price risk. As such, when producers decide to plant wheat, this fall, they will want to consider added output price or revenue risk management to partially mitigate higher input prices. Managing price/revenue risk could be accomplished through forward contracting, hedging with futures or options, and crop insurance, or a combination of risk management tools.
Crop insurance is a great starting point for price/revenue risk management. The projected price for wheat in Tennessee was set at $7.14/bu, assuming a 75 bu/acre APH and buyup coverage of 75 percent would establish a revenue guarantee of $401.63/acre. Producers should ask themselves how much of my estimated cost of production does this revenue guarantee protect? Would 85 percent buyup coverage (revenue guarantee of $455.18/acre) be a more comfortable level given the higher investment in the crop? Crop insurance can be complicated with numerous options and scenarios to analyze, so working with a qualified crop insurance professional will assist producers in tailoring the insurance coverage that best mitigates the risks facing their operation.
Corn
Ethanol production for the week ending September 17 was 0.926 million barrels per day, down 11,000 from the previous week. Ethanol stocks were 20.111 million barrels, up 0.101 million compared to last week. Corn net sales reported by exporters for September 10-16, 2021, were up compared to last week with net sales of 14.7 million bushels for the 2021/22 marketing year. Exports for the same period were up 153 percent from last week at 19.1 million bushels. Corn export sales and commitments were 40 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 28 percent. Nationally, this week’s Crop Progress report estimated corn condition at 59 percent good-to- excellent and 15 percent poor-to-very poor; corn dented at 93 percent compared to 87 percent last week, 94 percent last year, and a 5-year average of 89 percent; corn mature at 57 percent compared to 37 percent last week, 56 percent last year, and a 5-year average 47 percent; and corn harvested at 10 percent compared to 4 percent last week, 8 percent last year, and a 5-year average of 9 percent. In Tennessee, corn condition was estimated at 78 percent good-to- excellent and 4 percent poor-to-very poor; corn dented at 98 percent compared to 95 percent last week, 98 percent last year, and a 5-year average of 98 percent; corn mature at 79 percent compared to 60 percent last week, 76 percent last year, and a 5-year average of 87 percent; and corn harvested at 31 percent compared to 15 percent last week, 25 percent last year, and a 5-year average of 47 percent. Across Tennessee, average corn basis (cash price-nearby futures price) weakened or remained unchanged at West, Northwest, West-Central, and North-Central; and strengthened at Mississippi River elevators and barge points. Overall, basis for the week ranged from 20 under to 45 under, with an average of 35 under the December futures at elevators and barge points. December 2021 corn futures closed at $5.26, down 1 cent since last Friday. Downside price protection could be obtained by purchasing a $5.30 December 2021 Put Option costing 23 cents establishing a $5.07 futures floor. For the week, December 2021 corn futures traded between $5.07 and $5.31. In Tennessee, new crop cash corn prices at elevators and barge points ranged from $4.72 to $5.10.
Dec/Mar and Dec/May future spreads were 8 and 13 cents. March 2022 corn futures closed at $5.34, unchanged since last Friday. May 2022 corn futures closed at $5.39, up 1 cent since last Friday.
Soybeans
Net sales reported by exporters were down compared to last week with net sales of 33.2 million bushels for the 2021/22 marketing year and 0.4 million bushels for 2022/23 marketing year. Exports for the same period were up 12 percent compared to last week at 10.1 million bushels. Soybean export sales and commitments were 41 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 41 percent. Nationally, this week’s Crop Progress report estimated soybean condition at 58 percent good-to-excellent and 14 percent poor- to-very poor; soybeans dropping leaves at 58 percent compared to 38 percent last week, 56 percent last year, and a 5-year average of 48 percent; and soybeans harvested 6 percent compared to 5 percent last year and a 5-year average 6 percent. In Tennessee, soybean condition was estimated at 75 percent good-to-excellent and 5 percent poor-to- very poor; soybeans dropping leaves at 37 percent compared to 26 percent last week, 35 percent last year, and a 5-year average of 46 percent; and soybeans harvested at 5 percent compared to 1 percent last week, 6 percent last year, and a 5-year average of 8 percent.
Across Tennessee, average soybean basis weakened or remained unchanged at West, Northwest, and West-Central; and strengthened at North- Central and Mississippi River elevators and barge points. Basis ranged from 30 under to 65 under the November futures contract. Average basis at the end of the week was 45 under the November futures contract.
November 2021 soybean futures closed at $12.85, up 1 cent since last Friday. For the week, November 2021 soybean futures traded between $12.57 and $12.90. Downside price protection could be achieved by purchasing a $12.90 November 2021 Put Option which would cost 26 cents and set a $12.64 futures floor. Nov/Dec 2021 soybean-to-corn price ratio was 2.44 at the end of the week. In Tennessee, new crop cash soybean prices at elevators and barge points ranged from $12.03 to $12.55.
Nov/Jan and Nov/Mar future spreads were 9 and 12 cents. January 2022 soybean futures closed at $12.94, up 1 cent since last Friday. March 2022 soybean futures closed at $12.97, unchanged since last Friday. March 2022 soybean-to-corn price ratio was 2.43 at the end of the week.
Cotton
Net sales reported by exporters were up compared to last week with net sales 345,400 bales for the 2021/22 marketing year. Exports for the same period were down 26 percent compared to last week at 176,800 bales. Upland cotton export sales were 45 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 52 percent. Delta upland cotton spot price quotes for September 23 were 91.21 cents/lb (41-4-34) and 93.46 cents/lb (31-3-35). Adjusted world price decreased 1.94 cents to 77.59 cents.
Nationally, this week’s Crop Progress report estimated cotton condition at 64 percent good-to-excellent and 8 percent poor-to-very poor; cotton bolls opening at 48 percent compared to 36 percent last week, 56 percent last year, and a 5-year average of 53 percent; and cotton harvested at 9 percent compared to 5 percent last week, 10 percent last year, and a 5-year average of 11 percent. In Tennessee, cotton condition was estimated at 63 percent good-to-excellent and 16 percent poor-to-very poor; cotton bolls opening at 20 percent compared to 11 percent last week, 47 percent last year, and a 5-year average of 63 percent; and cotton harvested at 0 percent compared to 1 percent last year and a 5-year average of 3 percent. December 2021 cotton futures closed at 95.99 cents, up 3.66 cents since last Friday.
Downside price protection could be obtained by purchas-ing a 96 cent December 2021 Put Option costing 5.93 cents establishing an 90.07 cent futures floor. For the week, December 2021 cotton futures traded between 88.95 and 96.15 cents. Dec/Mar and Dec/May cotton futures spreads were -1.42 cents and -2.25 cents. March 2022 cotton futures closed at 94.57 cents, up 2.98 cents since last Friday. May 2022 cotton futures closed at 93.74 cents, up 2.5 cents since last Friday.
Wheat
Wheat net sales reported by exporters were down compared to last week with net sales of 13.1 million bushels for the 2021/22 marketing year.
Exports for the same period were down 1 percent from last week at 18.7 million bushels. Wheat export sales were 46 percent of the USDA estimated total annual exports for the 2021/22 marketing year (June 1 to May 31), compared to the previous 5-year average of 51 percent. In Tennessee, spot wheat prices at elevators and barge points ranged from $5.97 to $6.25. December 2021 wheat futures closed at $7.23, up 15 cents since last Friday. December 2021 wheat futures traded between $6.86 and $7.25 this week. December wheat-to-corn price ratio was 1.37. Dec/Mar and Dec/Jul future spreads were 11 and -7 cents. March 2022 wheat futures closed at $7.34, up 15 cents since last Friday. March wheat-to-corn futures price ratio was 1.37.
Nationally, the Crop Progress report estimated winter wheat planted at 21 percent compared to 12 percent last week, 19 percent last year, and a 5-year average of 18 percent; and winter wheat emerged at 3 percent compared to 3 percent last year and a 5-year average of 2 percent. In Tennessee, winter wheat planted was estimated at 1 percent. New crop wheat cash prices at elevators and barge points ranged from $6.56 to $6.83. July 2022 wheat futures closed at $7.16, up 13 cents since last Friday. Downside price protection could be obtained by purchasing a $7.20 July 2022 Put Option costing 58 cents establishing a $6.62 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee