Corn: Since the March 31st planting intentions report, September corn futures have increased by $0.05. However, there has been quite a bit of movement in the futures market after that report was released. The USDA indicated in that report that there would a reduction in corn acreage compared to last year’s levels. The report stated that we would plant 90 million acres of corn in 2017. While that was expected, it does create the potential for higher corn prices if we have a supply disruption in 2017, such as dry growing conditions in the Corn Belt. We do have to keep in mind that there is still a very large supply of corn out there. The past three years have provided phenomenal yields and with that comes an overabundant supply.
I am not trying to paint a bleak picture for corn prices. I am simply reminding producers that we have to be conscientious of the fact that any upside to this market can very easily be limited. The recent rally in corn prices over the past two weeks may be a profitable selling point for some producers. As we begin to plant the corn crop, it may be wise to lock in a portion of your production at profitable levels. Of course, that is dependent upon you having a good handle on your cost of production.
For West Tennessee, the average basis for new crop corn equaled -$0.11 as of 4/14/2017.
Soybeans: Since the March 31st planting intentions report, November soybean futures have increased by $0.08. However, for farmers that intend to plant a lot of soybeans, that is not a cause for celebration. The USDA prospective plantings report indicated that the U.S. would plant 89.48 million acres of soybeans in 2017. That is a 7% increase over last year’s levels. Again, the trade was expecting this news and it took very few by surprise. However, it creates a challenge for any significant rally in soybean futures. Over the past few weeks, Brazil has been harvesting a very large soybean crop, which creates an uphill battle for U.S. soybeans in the export market. When we compound a large South American crop with an already large supply of soybeans, we see soybean prices decline, or at best stay range bound. As in corn, soybean yields have been very good the past few years. So, we can expect to see high supply levels.
As farmers get into the field to plant their soybean crop, it may be advantageous to seek out profitable bids at delivery points such as processors that may be offering a higher basis. These destinations tend to be a bit farther away, but the difference in basis may be the determining factor between a profitable price and a price below your break even. That is a management decisions that you will have to make on your own.
For West Tennessee, the average basis for new crop soybeans equaled -$0.16 as of 4/14/2017. The basis at some inland elevators has weakened by than $0.15 over the past two weeks.
Wheat: In West Tennessee, the damage from the winter freeze seems to vary greatly from farm to farm with most not having a total loss. Overall, farmers are continuing to apply, or have already applied, another round of nitrogen and have begun applying fungicides to their wheat crop to fend off any head scab. That being said, most producers have decided to march forward with their wheat crop, which means they will need to be concerned with marketing their bushels. With harvest just around the corner, it is crucial that producers remember to market their wheat crop amidst the planting of their other crops.
Over the past two weeks, July wheat futures have increased by $0.04. Although that is nothing to write home about, it is better that a decline in prices. Basis for new crop wheat averaged $0.03 as of 4/14/2017 with some elevators increasing their wheat basis over the past 14 days.
Cotton: December cotton futures closed at 73.43. The USDA’s prospective plantings report indicated that there will be 12.23 million acres of cotton planted in 2017. That is a 21% increase over last year’s levels. The optimism for cotton continues to remain strong with many producers remembering the excellent yields that they have had over the past three years. However, producers have to be cautious about banking on record breaking yields to have a profitable year. Producers that are ramping up their cotton acreage should consider what their cash flow would look like with their 5 year average yield. I say this to caution those farmers that are contemplating buying newer equipment to handle the increase in cotton acreage. Although you will need equipment to harvest the crop, you still have to be able to afford that equipment. In a year with such tight profit margins, any increase in debt should be cautiously evaluated. Cotton equities are currently between $0.175 and $0.1768 per pound.
Take Home Message: The farming community has opined for higher prices the last few years. However, we have to realize that good production leads to very large commodity supplies. We have seen this with cotton over the past few years. That supply has to be reduced in order to have any hope for higher prices. We all want to return to the glory days of $7.00 corn and $14.00 soybeans, but that is not the reality we will have in 2017. Farmers will have to figure out a way to be profitable at these price levels. More often than not, it comes in the form of not making major capital purchases. In the farm financial plans that I have done with farmers over the past few months, it is not inputs that are killing farmers’ cash flows. It is high rent, equipment debt, and land debt.
So, how can we be profitable in 2017? Farmers will have to develop a concise plan to put in a crop that they can manage, pay very close attention to the grain markets, and possibly have to say “no” to buying new things.
For farmers that have had a loss for more than two consecutive years, read the following article from fellow UT Extension Area Farm Management Specialist, Chuck Danehower, for some very sound advice. http://www.southeastfarmpress.com/soybeans/facing-cash-shortfalls-when-it-time-quit-or-retire-farming