Two Major Global Situations Exerting Influence On Global Grain And Oilseed Prices
DR. AARON SMITH
KNOXVILLE, TENNESSEE
Exports will continue to be important for price direction. For the 2021/22 marketing year, the January USDA WASDE report estimates that 16.0 percent of U.S. corn production, 46.2 percent of soybean production, 50.1 percent of wheat production, and 85.1 percent of cotton production will be exported. Currently, two major global situations are exerting influence on global grain and oilseed prices.
The drought in South America has resulted in increased corn and soybean prices in the U.S. Brazil and Argentina account for 58 percent of global soybean exports and 40 percent of global corn exports. The U.S. is the largest exporter of corn, at 30 percent, and the second largest exporter of soybeans, behind Brazil, at 33 percent of global exports. Reduced supplies in Brazil and Argentina will shift global demand to U.S. origin and support higher domestic prices.
The second situation is the potential conflict between Russia and Ukraine. Russia has increased its share of global wheat exports from less than 10 percent in the early 2000s to approximately 20 percent and has been the top global supplier of wheat in recent years. For the 2021/22 marketing year, Ukraine is projected to provide 12 percent of global exports of wheat and 16 percent of global exports of corn.
Ukraine’s share of global corn exports has increased dramatically since 2010. Conflict between the two countries could restrict supplies and disrupt logistics in the region, causing importing countries to seek supplies elsewhere.
These two external influences have propelled markets higher, but also have a likelihood of increasing volatility in U.S. prices. Drought and geopolitical conflict can be unpredictable making the need for price risk management and flexibility in marketing necessary. One strategy that producers should consider is managing price risk through tools, such as options, while not securing a final cash price for the commodity. Volatility presents challenges with downside risk, but also provides opportunities for upside potential. Thus, producers will need to walk a fine line when developing risk management and marketing strategies in 2022.
Corn
Ethanol production for the week ending January 21 was 1.035 million barrels per day, down 18,000 from the previous week. Ethanol stocks were 24.476 million barrels, up 0.884 million compared to last week. Corn net sales reported by exporters for January 14-20, 2022, were up compared to last week with net sales of 55.2 million bushels for the 2021/22 marketing year and 6.5 million bushels for the 2022/23 marketing year. Exports for the same period were up 11 percent from last week at 56.6 million bushels – a marketing year high. Corn export sales and commitments were 71 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 63 percent. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at West, Northwest, West-Central, North-Central, and Mississippi River elevators and barge points. Overall, basis for the week ranged from 15 under to 43 over, with an average of 17 over the March futures at elevators and barge points.
March 2022 corn futures closed at $6.36, up 20 cents since last Friday. For the week, March 2022 corn futures traded between $6.09 and $6.37. Mar/May and Mar/Dec future spreads were -3 and -67 cents. May 2022 corn futures closed at $6.33, up 19 cents since last Friday.
New crop cash prices at elevators and barge points ranged from $5.31 to $5.83. December 2022 corn futures closed at $5.69, up 4 cents since last Friday. Downside price protection could be obtained by purchasing a $5.70 December 2022 Put Option costing 53 cents establishing a $5.17 futures floor.
Soybeans
Net sales reported by exporters were up compared to last week with net sales of 37.7 million bushels for the 2021/22 marketing year and 7.5 million bushes for the 2022/23 marketing year. Exports for the same period were down 12 percent compared to last week at 58.8 million bushels. Soybean export sales and commitments were 79 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 80 percent. Across Tennessee, average soybean basis strengthened or remained unchanged at Northwest, West-Central, and Mississippi River elevators and barge points and weakened at West and North-Central elevators and barge points. Basis ranged from 20 under to 35 over, with an average basis of 12 over the March futures contract. March 2022 soybean futures closed at $14.70, up 56 cents since last Friday. For the week, March 2022 soybean futures traded between $13.82 and $14.79. Mar/May and Mar/Nov future spreads were 5 and -1.19 cents.
March 2022 soybean-to-corn price ratio was 2.31 at the end of the week. May 2022 soybean futures closed at $14.75, up 52 cents since last Friday.
Nov/Dec 2022 soybean-to-corn price ratio was 2.37 at the end of the week. New crop cash soybean prices at elevators and barge points ranged from $12.57 to $13.61. November 2022 soybean futures closed at $13.51, up 35 cents since last Friday. Downside price protection could be achieved by purchasing a $13.60 November 2022 Put Option which would cost 109 cents and set a $12.51 futures floor.
Cotton
Net sales reported by exporters were up compared to last week with net sales of 391,300 bales for the 2021/22 marketing year and 106,800 bales for the 2022/23 marketing year. Exports for the same period were down less than 1 percent compared to last week at 197,900 bales.
Upland cotton export sales were 80 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 80 percent. Delta upland cotton spot price quotes for January 27 were 121.38 cents/lb (41-4-34) and 123.63 cents/lb (31-3-35). Adjusted world price increased 1.99 cents to 112.43 cents. March 2022 cotton futures closed at 123.76 cents, up 3.01 cents since last Friday. For the week, March 2022 cotton futures traded between 119.2 and 125.6 cents. Mar/May and Mar/ Dec cotton futures spreads were -2.92 cents and -24.03 cents. May 2022 cotton futures closed at 120.84 cents, up 2.86 cents since last Friday.
December 2022 cotton futures closed at 99.73 cents, up 0.88 cents since last Friday. Downside price protection could be obtained by purchasing a 100 cent December 2022 Put Option costing 9.43 cents establishing a 90.57 cent futures floor.
Wheat
Wheat net sales reported by exporters were up compared to last week with net sales of 24.9 million bushels for the 2021/22 marketing year and 2.2 million bushels for the 2022/23 marketing year. Exports for the same period were down 8 percent from last week at 13.3 million bushels. Wheat export sales were 78 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 84 percent. Wheat cash prices at elevators and barge points ranged from $8.07 to $8.48. March 2022 wheat futures closed at $7.86, up 6 cents since last Friday. March 2022 wheat futures traded between $7.74 and $8.31 this week. March wheat-to-corn price ratio was 1.24. Mar/May and Mar/Jul future spreads were 5 and -4 cents. May 2022 wheat futures closed at $7.82, up 8 cents since last Friday. May wheat-to-corn futures price ratio was 1.25.
New crop wheat cash prices at elevators and barge points ranged from $7.42 to $8.18. July 2022 wheat futures closed at $7.82, up 8 cents since last Friday. Downside price protection could be obtained by purchasing a $7.90 July 2022 Put Option costing 64 cents establishing a $7.26 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee