Corn and Soybean Market Update, August 9, 2017

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1 Corn and Soybean Market Update, August 9, 2017 Aaron Smith Assistant Professor Department of Agricultural and Resource Economics University of Tennessee Extension

2 Overview Corn and Soybean Supply and Demand Price Harvest and Post Harvest Marketing Strategies Cash Sales Storage Cash Forward Contracts Futures and Options

3 Corn

4 7 World Corn Exports by Country, Billions of Bushels Argentina Brazil Canada Ukraine United States ROW

5 7 World Corn Imports by Country, Billions of Bushels China Egypt European Union Japan Korea, South Mexico ROW

6 45 World Corn Consumption, Production, and Ending Stocks, Billions of Bushels World Ending Stocks Production Consumption

7 90 Corn Days of Inventory On-Hand (Ending Stocks/(Domestic Consumption/365)), Days of Inventory On-Hand US World

8 Corn Crop Progress

9 8.00 U.S. Corn Stocks-to-Use to Price Relationship, MYA Price ($/bu) y = -28.1x R² = % 7.0% 9.0% 11.0% 13.0% 15.0% 17.0% 19.0% 21.0% US Stocks-to-Use Ratio (%)

10 Soybean

11 6.00 World Soybean Exports by Country, Billions of Bushels Argentina Brazil United States ROW

12 6.00 World Soybean Imports by Country, Billions of Bushels China European Union ROW

13 World Soybean Consumption, Production, and Ending Stocks, Billions of Bushels Ending Stocks Consumption Production

14 120 Soybeans Days of Inventory on-hand (Ending Stocks/(Domestic Consumption/365)), Days of Inventory On-Hand US World

15 Corn: N. Dakota 3.45 million acres (4.1%) S. Dakota 4.8 million acres (5.7%) Soybeans: N. Dakota 7.15 million acres (8.1%) S. Dakota million acres (6%)

16 Soybean Crop Condition

17 MYA Price ($/bu) Soybean Stocks-to-Use to Price Relationship, y = -34.2x R² = % 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% US Stocks-to-Use (%)

18 2017 Crop Price Projections Source Corn Soybeans CBOT (Harvest) $3.85 $9.78 CBO $3.41 $9.43 FAPRI $3.60 $9.57 WASDE $2.90-$3.70 $8.40-$10.40

19 500 December Corn Futures 450 Cents/Bushel Dec 31-Dec 30-Jan 1-Mar 31-Mar 30-Apr 30-May 29-Jun 29-Jul 28-Aug 27-Sep 27-Oct 26-Nov

20 Price ($/bu) Tennessee Monthly Average Corn Price Less Marketing Year Average Price, SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG -$0.13 -$0.09 -$0.18 -$0.24 -$0.48 -$0.44 $0.06 $0.10 $0.23 $0.24 $0.34 $0.58

21 1200 November Soybean Futures 1100 Cents/Bushel Nov 1-Dec 1-Jan 1-Feb 1-Mar 1-Apr 1-May 1-Jun 1-Jul 1-Aug 1-Sep 1-Oct 1-Nov

22 1.50 Tennessee Monthly Average Soybean Price less Marketing Year Average Price, Price ($/bu) $0.08 $0.17 $0.91 $0.98 $0.60 $0.16 $0.34 SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG $0.56 -$0.36 -$ $0.89 -$0.90

23 Harvest and Post-Harvest Pricing Strategies

24 Pre-harvest / Harvest Pricing Cash Sales Evaluate if any early harvest price premiums can be obtained The range of yield outcomes for Tennessee corn fields has narrowed substantially Additional pricing can be accomplished without incurring substantial production risk Futures Still production uncertainty (Northern Corn Belt states) priced into the market? Sell rallies. Storage On farm storage capacity and/or commercial storage options should be examined Prioritize which crops will be stored and which will be marketed The ability to store the crop can assist in: 1) getting the crop out of the field in a timely manner; and 2) extending the marketing window

25 Post-Harvest Pricing Store Crop Price Later Deliver Crop Price Later Store Buy Deferred Put Option Sell Deferred Futures Cash Contract for Future Delivery Sell Cash Crop Buy a Call Sell Cash Crop Buy Deferred Futures Contact Futures and options can be utilized without ownership of the physical commodity

26 Sell Crop in Cash Market and Buy Call Option (Example) Sell crop at harvest / buy a $4.20 call for $0.14 premium Max loss =$0.14 (premium) Breakeven = March Corn Contract =$4.34 March Corn > $4.34 = Profit (March Corn -$4.34) Futures and options are not for everyone so be sure to evaluate and understand all risks before entering into advanced marketing strategies. If March Corn Futures Price in February is Net Gain or Loss (Including Premium) $4.10 $0.14 Loss $4.20 $0.14 Loss $4.30 $0.04 Loss $4.40 $0.06 Gain $4.50 $0.16 Gain $4.60 $0.26 Gain

27 Thank You / Questions? Dr. Aaron Smith - Row Crop Economist Department of Agricultural and Resource Economics University of Tennessee Extension Aaron.smith@utk.edu