The Drought In South America Has Clearly Adversely Affected Production

DR. AARON SMITH

KNOXVILLE, TENNESSEE

   Limited changes were made to the domestic supply and demand balance sheets with soybean crush up 25 million bushels, cotton exports down 250,000 bales, and wheat total use down 20 million bushels. However, major revisions were again made to South American production. 

   Brazil’s corn and soybean production were projected 39 and 184 million bushels lower, compared to last month. Argentina and Paraguay soybean production was projected 55 and 81 million bushels lower. The drought in South America has clearly adversely affected production, but the full impact is unlikely to be realized for several months. US prices and exports will continue to be supported by lower South American production.

   The recent acceleration in soybean prices has been remarkable. In the last ten trading days, November 22 soybeans have had daily changes of +15 ½, +15, +7 ¾, +3, +3, +20 ¼, -3, +24 ½, -5 ½, and +12 cents. 

   An increase of 92 ½ cents in two weeks. The recent dramatic increase has accentuated the change in the 2022 harvest soybean-to-corn price ratio over the past three months. On December 1st, the 2022 harvest price ratio was 2.21 ($12.14/$5.48) on Friday, February 11 it closed at 2.43 ($14.44/$5.94). Both commodities have experienced substantial price gains – corn $0.46 and soybeans $2.30, but soybeans have clearly outpaced corn price increases. This dramatic increase in soybean prices relative to corn will undoubtedly have an influence on planted acres, however there is still time between now and planting for the price relationship to change. Combining the price advantage and projected lower input cost per planted acre, could increase projected soybean planted acreage from 1-2 million acres compared to December estimates.

   Projected crop insurance prices as of February 11 were corn $5.79; cotton $1.04; and soybeans $14.07. Projected prices will be finalized on February 28.

   Corn

   Ethanol production for the week ending February 4 was 0.994 million barrels per day, down 47,000 from the previous week. Ethanol stocks were 24.799 million barrels, down 1.055 million compared to last week. 

   Corn net sales reported by exporters for January 28 to February 3, 2022, were down compared to last week with net sales of 23.2 million bushels for the 2021/22 marketing year. Exports for the same period were down 2 percent from last week at 45.2 million bushels. Corn export sales and commitments were 74 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 69 percent. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Northwest, West-Central, North- Central, and Mississippi River elevators and barge points and weakened at West elevators and barge points. Overall, basis for the week ranged from 5 under to 36 over, with an average of 15 over the March futures at elevators and barge points. March 2022 corn futures closed at $6.51, up 31 cents since last Friday. For the week, March 2022 corn futures traded between $6.24 and $6.62. Mar/May and Mar/Dec future spreads were -1 and -57 cents. May 2022 corn futures closed at $6.50, up 29 cents since last Friday.

   New crop cash prices at elevators and barge points ranged from $5.46 to $5.97. December 2022 corn futures closed at $5.94, up 21 cents since last Friday. Downside price protection could be obtained by purchasing a $6.00 December 2022 Put Option costing 61 cents establishing a $5.39 futures floor.

   Soybeans

   Net sales reported by exporters were up compared to last week with net sales of 58.7 million bushels for the 2021/22 marketing year and 32.9 million bushes for the 2022/23 marketing year. Exports for the same period were down 2 percent compared to last week at 47.8 million bushels. Soybean export sales and commitments were 84 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 81 percent. 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 10 under to 40 over, with an average basis of 13 over the March futures contract. March 2022 soybean futures closed at $15.83, up 30 cents since last Friday. For the week, March 2022 soybean futures traded between $15.59 and $16.33. Mar/May and Mar/Nov future spreads were 3 and -139 cents. March 2022 soybean-to-corn price ratio was 2.43 at the end of the week. May 2022 soybean futures closed at $15.86, up 29 cents since last Friday.

Nov/Dec 2022 soybean-to-corn price ratio was 2.43 at the end of the week. New crop cash soybean prices at elevators and barge points ranged from $13.90 to $14.63. November 2022 soybean futures closed at $14.44, up 49 cents since last Friday. Downside price protection could be achieved by purchasing a $14.60 November 2022 Put Option which would cost 118 cents and set a $13.42 futures floor.

   Cotton

   Net sales reported by exporters were up compared to last week with net sales of 185,200 bales for the 2021/22 marketing year and 96,100 bales for the 2022/23 marketing year. Exports for the same period were down 1 percent compared to last week at 299,700 bales. Upland cotton export sales were 88 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 83 percent. Delta upland cotton spot price quotes for February 10 were 125.41 cents/lb (41-4-34) and 127.66 cents/ lb (31-3-35). Adjusted world price increased 1.5 cents to 117.6 cents. 

   March 2022 cotton futures closed at 125.28 cents, down 1.46 cents since last Friday. For the week, March 2022 cotton futures traded between 124.92 and 127.37 cents. Mar/May and Mar/Dec cotton futures spreads were -2.37 cents and -20.09 cents. May 2022 cotton futures closed at 122.91 cents, down 1.08 cents since last Friday.

   December 2022 cotton futures closed at 105.19 cents, up 1.38 cents since last Friday. Downside price protection could be obtained by purchasing a 106 cent December 2022 Put Option costing 10.15 cents establishing a 95.85 cent futures floor.

   Wheat

   Wheat net sales reported by exporters were down compared to last week with net sales of 3.1 million bushels for the 2021/22 marketing year and 1.8 million bushels for the 2022/23 marketing year. Exports for the same period were down 1 percent from last week at 14.0 million bushels. Wheat export sales were 80 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 87 percent. Wheat cash prices at elevators and barge points ranged from $8.03 to $8.20. March 2022 wheat futures closed at $7.97, up 34 cents since last Friday. 

   March 2022 wheat futures traded between $7.54 and $8.06 this week. 

   March wheat-to-corn price ratio was 1.22. Mar/May and Mar/Jul future spreads were 7 and 1 cents. May 2022 wheat futures closed at $8.04, up 34 cents since last Friday. May wheat-to-corn futures price ratio was 1.24.

   New crop wheat cash prices at elevators and barge points ranged from $7.39 to $7.96. July 2022 wheat futures closed at $7.98, up 37 cents since last Friday. Downside price protection could be obtained by purchasing an $8.00 July 2022 Put Option costing 67 cents establishing a $7.33 futures floor. ∆

   DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee