Weekly Crop Comments by Dr. Aaron Smith

 

Next week will be the start of the crop insurance price determination period for spring planted crops in Tennessee. Unfortunately, futures prices have retreated substantially compared to the beginning of the calendar year: December corn opened the month at $4.01 ¾ and closed at $3.91, down 10 ¾ cents; November soybeans opened January at $9.78 ¾ and closed at $9.12 ½, down 66 ¼ cents; and December cotton opened January at 70.7 and closed at 68.73, down 1.97 cents.

 

The projected (spring) crop insurance price in Tennessee is determined by the average daily closing price of the harvest contract for the month of February. For 2019, the projected crop insurance price was: $4.00/bu for corn, $9.54/bu for soybeans, and $0.73/lb for cotton. The projected crop insurance price is one factor that provides producers with information on what should be planted. A higher price for one commodity, compare to the others, results in a greater relative crop insurance revenue guarantee and should provide an incentive to increase planted acres for that commodity. Last year’s projected crop insurance price ratios, 2.385 soybeans/corn; 0.1825 cotton/corn; and 0.0765 cotton/soybeans, favored greater corn and cotton acreage in the state at the expense of soybean acres.

 

For all three commodities, the current harvest futures price is less than the 2019 final projected prices. However, based on where harvest futures are at the end of January 2020 it appears corn stands to gain additional planted acres. Corn-to-soybean price ratio is 2.33 indicating an even greater bias towards increased corn acres compared to soybeans than 2019. Cotton-to-corn price ratio is 0.176 also favoring corn planting over cotton. Cotton-to-soybean price ratio is 0.0753 indicating a slight preference for soybeans over cotton compared to 2019.

 

A lot can happen in one month (see the price changes above), however if the price relationships amongst the three spring crops hold, it is reasonable to assume that crop insurance guarantees will favor increased planted acres for corn over cotton and soybeans in 2020.

 

 

 

Ethanol production for the week ending January 24 was 1.029 million barrels per day, down 20,000 barrels from the previous week. Ethanol stocks were 24.244 million barrels, up 0.213 million barrels compare to last week. Corn net sales reported by exporters for January 17-23 were up compared to last week with net sales of 48.6 million bushels for the 2019/20 marketing year and 5.7 million bushels for the 2020/21 marketing year. Exports for the same time period were up 74% from last week at 26.8 million bushels. Corn export sales and commitments were 48% of the USDA estimated total annual exports for the 2019/20 marketing year (September 1 to August 31) compared to the previous 5-year average of 63%. Across Tennessee, average corn basis (cash price-nearby futures price) weakened at Memphis, Northwest Barge Points, and Northwest Tennessee and strengthened at Upper-middle Tennessee. Overall, basis for the week ranged from 18 under to 27 over, with an average of 14 over the March futures at elevators and barge points. March 2020 corn futures closed at $3.81, down 6 cents since last Friday. For the week, March 2020 corn futures traded between $3.77 and $3.88. Mar/May and Mar/Dec future spreads were 5 and 9 cents. May 2020 corn futures closed at $3.86, down 6 cents since last Friday.

 

 

In Tennessee, new crop cash corn contracts ranged from $3.87 to $4.13. December 2020 corn futures closed at $3.90, down 8 cents since last Friday. Downside price protection could be obtained by purchasing a $4.00 December 2020 Put Option costing 29 cents establishing a $3.71 futures floor.

 

 

 

Net sales reported by exporters were down compared to last week with net sales of 17.3 million bushels for the 2019/20 marketing year and 0.1 million bushels for the 2020/21 marketing year. Exports for the same period were up 17% compared to last week at 45.2 million bushels. Soybean export sales and commitments were 66% of the USDA estimated total annual exports for the 2019/20 marketing year (September 1 to August 31), compared to the previous 5-year average of 80%. Average soybean basis weakened at Memphis, Northwest Barge Points, and Upper-middle Tennessee and strengthened at Northwest Tennessee. Basis ranged from 17 under to 26 over the March futures contract at elevators and barge points. Average basis at the end of the week was 8 over the March futures contract. March 2020 soybean futures closed at $8.72, down 30 cents since last Friday. For the week, March 2020 soybean futures traded between $8.72 and $9.03. Mar/May and Mar/Nov future spreads were 14 and 40 cents. May 2020 soybean futures closed at $8.86, down 29 cents since last Friday. March soybean-to-corn price ratio was 2.29 at the end of the week.

 

 

In Tennessee, new crop soybean cash contracts ranged from $8.85 to $9.39. Nov/Dec 2020 soybean-to-corn price ratio was 2.34 at the end of the week. November 2020 soybean futures closed at $9.12, down 26 cents since last Friday. Downside price protection could be achieved by purchasing a $9.20 November 2020 Put Option which would cost 46 cents and set an $8.74 futures floor.

 

 

 

Net sales reported by exporters were up compared to last week with net sales of 347,100 bales for the 2019/20 marketing year and 50,200 bales for the 2020/21 marketing year. Exports for the same time period were up 16% compared to last week at 327,100 bales. Upland cotton export sales were 81% of the USDA estimated total annual exports for the 2019/20 marketing year (August 1 to July 31), compared to the previous 5-year average of 77%. Delta upland cotton spot price quotes for January 30 were 66.3 cents/lb (41-4-34) and 68.55 cents/lb (31-3-35). Adjusted World Price (AWP) decreased 0.70 cents to 60.59 cents. March 2020 cotton futures closed at 67.5 cents, down 1.9 cents since last Friday. For the week, March 2020 cotton futures traded between 67.4 and 70.92 cents. Mar/May and Mar/Dec cotton futures spreads were 0.81 cents and 1.23 cents. May 2020 cotton futures closed at 68.31, down 1.89 cents since last Friday.

 

 

December 2020 cotton futures closed at 68.73, down 1.81 cents since last Friday. Downside price protection could be obtained by purchasing a 69 cent December 2020 Put Option costing 4.09 cents establishing a 66.91 cent futures floor.

 

 

 

Wheat net sales reported by exporters were down compared to last week with net sales of 23.7 million bushels for the 2019/20 marketing year and 0.03 million bushels for the 2020/21 marketing year. Exports for the same time period were down 58% from last week at 8.0 million bushels. Wheat export sales were 79% of the USDA estimated total annual exports for the 2019/20 marketing year (June 1 to May 31), compared to the previous 5-year average of 85%. March 2020 wheat futures closed at $5.53, down 20 cents since last Friday. March 2020 wheat futures traded between $5.50 and $5.76 this week. March wheat-to-corn price ratio was 1.45. Mar/May and Mar/Jul future spreads were -1 and -1 cent. May 2020 wheat futures closed at $5.52, down 20 cents since last Friday. May wheat-to-corn price ratio was 1.43.  

 

 

In Tennessee, June/July 2020 cash contracts ranged from $5.62 to $6.14. July 2020 wheat futures closed at $5.52, down 21 cents since last Friday. Downside price protection could be obtained by purchasing a $5.60 July 2020 Put Option costing 34 cents establishing a $5.26 futures floor.