There Remains A Lot Of Bullish Momentum In Soybean And Corn Markets
DR. AARON SMITH
KNOXVILLE, TENNESSEE
Corn and soybean harvest futures set new contract highs this week at $5.99 ½ and $14.72. The upward trek in corn and soybean markets have been remarkable. A positive addition to increased prices is creating a very solid risk management base through elevated projected crop insurance prices (prices will be finalized February 28). There remains a lot of bullish momentum in soybean and corn markets, but there are also substantial risks. Below are bullish and bearish factors impacting corn markets.
Bullish factors. Corn export sales have been very strong this year.
USDA projects exports for the current marketing year of 2.425 billion bushels, slightly lower than last marketing year’s estimate of 2.753 billion bushels. Current export commitments are 76 percent (compared to a 5-year average of 71 percent) of the marketing year total, with six and half months remaining in the marketing year. Drought in Argentina and Southern Brazil have stressed corn crops and may have implications for Brazil’s second corn crop. Reduced production in South America will have corn importers shifting demand to other exporters, including the U.S., further strengthening the robust export sales pace. Ukraine-Russia tensions could disrupt corn production and logistics in the region and stall corn movements to international markets. Ukraine is projected to provide 16 percent of global corn exports for the 2021/22 marketing year. Reduced exports from the region will have importers seeking alternative sources to meet demand.
Acreage competition will be fierce this spring. Soybeans and cotton will challenge corn for acres as all prices are very strong. Corn may be at a strategic disadvantage due to the relatively high cost of production relative to other U.S. row crops. More soybean and cotton planted acres need to come from other commodities and some of those acres may be at the expense of corn.
Bearish factors. Ethanol uncertainty is a troubling development.
Currently there does not seem to be direction or a strong indication of support for corn ethanol from the federal government. Additionally, ethanol stocks have ballooned recently to 25.483 million barrels the highest-level excluding March-May 2020, when COVID-19 shutdowns caused a buildup in ethanol supply.
High prices will provide a global incentive to plant. The old saying high prices will cure high prices is firmly in play. Producers worldwide are receiving strong signals to increase production. China is a major purchaser and influencer in grain and oilseed markets.
While China can be a bullish factor in markets, it also has the ability to provide bearish surprises and manipulate markets in its favor. Global economic uncertainty and supply chain disruptions will continue to influence markets and create an unpredictable environment in 2022.
Corn
Ethanol production for the week ending February 11 was 1.009 million barrels per day, up 15,000 from the previous week. Ethanol stocks were 25.483 million barrels, up 0.684 million compared to last week. Corn net sales reported by exporters for February 4-10, 2022, were up compared to last week with net sales of 32.3 million bushels for the 2021/22 marketing year and 4.5 million bushels for the 2022/23 marketing year. Exports for the same period were up 41 percent from last week at 63.7 million bush-els – a marketing year high. Corn export sales and commitments were 76 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 71 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 5 under to 34 over, with an average of 16 over the March futures at elevators and barge points. March 2022 corn futures closed at $6.54, up 3 cents since last Friday. For the week, March 2022 corn futures traded between $6.35 and $6.58. Mar/May and Mar/Dec future spreads were -2 and -57 cents. May 2022 corn futures closed at $6.52, up 2 cents since last Friday.
New crop cash prices at elevators and barge points ranged from $5.54 to $6.06. December 2022 corn futures closed at $5.97, up 3 cents since last Friday. Downside price protection could be obtained by purchasing a $6.00 December 2022 Put Option costing 57 cents establishing a $5.43 futures floor.
Soybeans
Net sales reported by exporters were up compared to last week with net sales of 50.0 million bushels for the 2021/22 marketing year and 56.1 million bushes for the 2022/23 marketing year. Exports for the same period were down 7 percent compared to last week at 44.6 million bushels. Soybean export sales and commitments were 86 percent of the USDA estimated total annual ex-ports for the 2021/22 marketing year (September 1 to August 31), compared to the previous 5-year average of 82 percent. Across Tennessee, average soybean basis strengthened or remained unchanged at Northwest, West-Central, and North-Central elevators and barge points and weakened at West and Mississippi River elevators and barge points. Basis ranged from 10 under to 38 over, with an average basis of 11 over the March futures contract. March 2022 soybean futures closed at $16.01, up 18 cents since last Friday.
For the week, March 2022 soybean futures traded between $15.42 and $16.08. Mar/May and Mar/Nov future spreads were 2 and -138 cents. March 2022 soybean-to-corn price ratio was 2.45 at the end of the week. May 2022 soy-bean futures closed at $16.03, up 17 cents since last Friday.
Nov/Dec 2022 soybean-to-corn price ratio was 2.45 at the end of the week. New crop cash soybean prices at elevators and barge points ranged from $14.08 to $14.86. November 2022 soybean futures closed at $14.63, up 19 cents since last Friday. Downside price protection could be achieved by purchasing a $14.80 November 2022 Put Option which would cost 124 cents and set a $13.56 futures floor.
Cotton
Net sales reported by exporters were down compared to last week with net sales of 158,500 bales for the 2021/22 marketing year and 34,700 bales for the 2022/23 marketing year. Exports for the same period were down 10 percent compared to last week at 270,000 bales. Upland cotton export sales were 89 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 85 percent. Delta upland cotton spot price quotes for February 17 were 120.52 cents/lb. (41-4-34) and 122.77 cents/lb. (31-3-35). Adjusted world price decreased 2.98 cents to 114.62 cents. March 2022 cotton futures closed at 122.99 cents, down 2.29 cents since last Friday. For the week, March 2022 cotton futures traded between 121.43 and 125.47 cents. Mar/May and Mar/Dec cotton futures spreads were -1.83 cents and -20.2 cents. May 2022 cotton futures closed at 121.16 cents, down 1.75 cents since last Friday.
December 2022 cotton futures closed at 102.79 cents, down 2.4 cents since last Friday. Downside price protection could be obtained by purchasing a 103 cent December 2022 Put Option costing 9.31 cents establishing a 93.69 cent futures floor.
Wheat
Wheat net sales reported by exporters were down compared to last week with net sales of 4.3 million bushels for the 2021/22 marketing year and 0.4 million bushels for the 2022/23 marketing year. Exports for the same period were up 8 percent from last week at 15.1 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 89 percent. Wheat cash prices at elevators and barge points ranged from $8.14 to $8.34. March 2022 wheat futures closed at $7.97, unchanged since last Friday. March 2022 wheat futures traded between $7.73 and $8.13 this week. March wheat-to-corn price ratio was 1.22. Mar/May and Mar/Jul future spreads were 7 and 3 cents. May 2022 wheat futures closed at $8.04, unchanged since last Friday. May wheat-to-corn futures price ratio was 1.23.
New crop wheat cash prices at elevators and barge points ranged from $7.52 to $8.12. July 2022 wheat futures closed at $8.00, up 2 cents since last Friday. Downside price protection could be obtained by purchasing an $8.10 July 2022 Put Option costing 70 cents establishing a $7.40 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee