Author: William E. Maples

  • Cash Grain Contracts and When to Use Them

    Cash Grain Contracts and When to Use Them

    As planting begins, it is an excellent time to review the various cash grain contracts available for producers to incorporate into their crop marketing plan. When considering contracts, the producer must understand the special features of each contract and the type of risk it is managing. Producers must also consider the effects of market movement on the contract outcome. This article outlines some common types of grain contracts and how the market can affect the contract results. Producers should speak with their local grain purchaser about the availability of the following contracts and associated fees. 

    Cash Market Sales – A cash market sale is simply selling grain at the prevailing market price. A producer may choose to sell in the cash market if they deem it appropriate to sell at the market price or if they need to move old crop grain from storage to create space for the new crop. Cash market sales are risky as a marketing strategy because the market price might not be acceptable when the producer is forced to sell, especially if no other strategy is in place.

    Forward Contract – A grain farmer may enter into a forward contract with a grain buyer, requiring the producer to deliver a specific quantity and quality of grain at a certain time, place, and price. This type of agreement can be made before planting or anytime during the growing season.

    Minimum Price Contract – A minimum price contract is an agreement between the producer and elevator in which a producer is guaranteed either a minimum agreed upon price or the current cash price. Under this contract, a producer must pay a premium, which is relatively high in volatile markets, and any transaction charges. A minimum price establishes a price floor and allows for upside price potential without the direct use of futures and options. Additionally, the contract can provide some leverage in obtaining credit.   

    Basis Contract – Basis is defined as the local cash price minus the futures price. A basis contract is an agreement in which a producer and elevator establish a basis but not the futures price. The producer can select the day on which the futures price is set. A basis contract is useful when the basis is stronger than normal or when one thinks the basis will weaken before a sale is made. Since a basis contract does not set a price, this contract does not provide price upside potential and exposes a seller to downside price risk since futures prices may move lower. A delivery obligation is established, so a producer is exposed to the production risk of fulfilling the contract.

    Hedge-to-Arrive Contract  – A hedge-to-arrive contract is the opposite of a basis contract and is an agreement that allows the producer to set the futures price but leaves the basis to be set at a later date and prior to delivery. Once the basis is established, the producer will receive the futures price less the basis. 

    Price Later (Delayed Pricing) Contract – A price later contract allows the producer to deliver grain and establish the sale price at a later date. Upon delivery, the title of the grain passes to the buyer. The price a producer receives will be the elevator cash price on the day the producer decides to establish the price minus any service charges. This contract allows the producer to move grain despite a relatively low price environment, but the producer is still open to downward price risk if the market moves against them since the grain is unpriced. 

    Which tool should a producer use?

                Figure 1 provides a guide on when to consider using the different types of contracts. The top right quadrant of Figure 1 represents ideal market conditions. In this quadrant, futures prices are expected to rise, and basis is expected to strengthen. Contracts that provide upside price potential are attractive in this scenario. These include minimum price contracts or price later contracts. The bottom left quadrant of Figure 1 represents the worst-case scenario for market conditions. Futures prices are expected to decrease, and the basis is expected to weaken. This scenario suggests that current market conditions are better than expected. Producers will want to consider selling at current price levels with either cash sales or a forward contract. 

                The top left and bottom right quadrants represent market conditions that are somewhere in between the best- and worst-case scenarios. The top left quadrant represents expected higher futures prices but with the risk of the basis weakening. A basis contract would allow producers to limit basis risk in this scenario by locking in a basis and providing upside potential for the price. The bottom right quadrant represents the expectation of increasing basis but a lower futures price. A hedge-to-arrive contract would allow producers to lock in a futures price and limit price risk but still be able to take advantage of a strengthening basis.  

    Figure 1. Best Fit Alternatives for Grain Contracts by Market Conditions*


    Maples, William E. “Cash Grain Contracts and When to Use Them.” Southern Ag Today 4(18.1). April 29, 2024. Permalink

  • USDA Outlook Forum and Planted Acres

    USDA Outlook Forum and Planted Acres

    On February 15-16, 2024, the USDA held its 100th Annual Agricultural Outlook Forum. During the forum, USDA revealed its outlook for the domestic agricultural economy and trade for 2024. The outlook included 2024/25 crop year supply and demand projections for grains, oilseed, and cotton. USDA is forecasting lower prices for most major crops this year and growing export competition. Complete outlook reports by commodity can be found at AOF Commodity Outlooks | USDA. An important projection provided at the Outlook Forum is planted acres for major row crops as it serves as an early data point for markets to consider. This article examines planted acreage projections and what they might mean as we look ahead to the March USDA-NASS Prospective Plantings report, which is a comprehensive survey of producer planting intentions and provides a more accurate pre-planting picture of the upcoming year.

     During the USDA Outlook Forum, 2024/25 corn planted acreage was projected at 91.0 million, and soybean planted acreage at 87.5 million. If realized, this would mean 3.6 million fewer acres of corn and 3.9 million more acres of soybeans than last year. Corn acreage is expected to be reduced due to declining prices and elevated production costs. While production costs are lower than the previous year, lower corn prices will result in tighter margins. Domestic crush demand in the United States largely drives the increase in soybean acreage, even though exports are expected to face continued pressure from South American competition. Planted cotton acreage is projected to be 11.0 million acres, compared to 10.3 million acres last year. The relative prices of cotton versus corn and soybeans indicate that cotton is more competitive this year than last. 

     The Outlook Forum projections rely on model estimates and do not include a survey of producers. The USDA’s first survey of producer planting intentions will be conducted in early March and released on March 28th in the Prospective Plantings report. Figures 1-3 compare the Outlook Forum predictions and the historic Prospective Plantings reports for corn, soybeans, and cotton. Based on an average of the past ten years, the USDA Outlook Forum has done a decent job predicting acreage compared to the Prospective Plantings report. On average, corn planted acres were under-predicted by 290,000 acres, soybeans by 200,000, and cotton by 115,000. In some individual years, corn and soybeans have experienced significant differences. For example, in 2022, the Outlook Forum over-predicted corn acres by 2.5 million acres and under-predicted soybeans by 3 million. Interestingly, the 2024/25 projections match the Outlook Forum projections for corn and soybeans in 2023. Even though the Outlook Forum projection was the same as the Prospective Plantings report for soybeans in 2023, the final panted acres still ended up being 3.9 million less. These projections are preliminary, and market and environmental conditions going forward can change producer planting intentions. Producers should closely monitor these conditions when making marketing decisions over the next month. 

    Maples, William E., and Spencer J. Sanderson. “USDA Outlook Forum and Planted Acres.Southern Ag Today 4(9.1). February 26, 2024. Permalink

  • Using Historical Price Movements to Inform Marketing Decisions

    Using Historical Price Movements to Inform Marketing Decisions

    Marketing plans are typically made up of two parts: pre-harvest marketing, in which producers market the crop prior to harvest, and post-harvest marketing, in which producers sell bushels during harvest or unmarketed bushels in storage after harvest.  In this article, we discuss how historical pre-harvest price movements can be used as a guide for producers when creating their pre-harvest marketing plans. Figures 1 and 2 contain boxplots that show the distribution of historical percent changes in the harvest-time futures prices for soybeans (November contract) and corn (December contract) from December to each subsequent month using data which spans from 2009-2023. Boxplots are helpful as they allow us to analyze the seasonality of prices and the associated price volatility across the year. In the boxplots, the X represents the average November soybean contract price percent change from December to the corresponding month. The bottom whisker represents the lowest 25% of price changes, the box represents the next 50% of price changes, and the top whisker represents the highest 25% of price changes. The line separating the box represents the median; 50% of observations lie below, and 50% lie above. The black dots represent outliers, values at the extreme end of the data. 

    Figure 1 indicates that the highest average soybean price occurs in July, where the price is approximately 5% higher than in December; however, the median is approximately 0%, indicating that the price is only higher 50% of the time. On the contrary, the month of June has a slightly lower average price increase at 4%, but less downside risk. An interesting result for soybeans is the outliers in February and March, corresponding to the Brazilian soybean harvest window. We hypothesize that Brazilian crop or harvest issues can provide U.S. soybean producers with opportunities to market grain crops at abnormally high prices with respect to the December price. 

     Figure 2 indicates the summer months again provide the highest average corn price change, with June being the highest on average. We again find that with higher price potential comes more price variability. The May and June median price changes are near 0%, indicating equal upside and downside price risk. After June, the median becomes more negative, indicating that prices are likely to drop with expected new crop production. In May, the upside price potential ranges from 0% to 35%, while the downside ranges from 0% to -15%. 

    Figures 1 and 2 put price risk in perspective as it pertains to pre-harvest marketing plans. On average, prices are higher in the summer than in December; however, these higher prices carry a significant amount of downside risk. For example, if a producer is trying to decide if they should market corn in May. The boxplots would indicate that if the price is 15% greater than the December price, price movements have been greater than at least 75% of price movements historically. Creating a solid signal to lock in the higher price. These charts may also indicate the usefulness of option contracts, such as establishing a futures market price floor through purchasing a put option or building an option spread strategy. The summer months have wide trading ranges, by using an option producers can lock in a price floor but leave themselves open to upside potential. 


    Maples, William E., and Grant Gardener. “Using Historical Price Movements to Inform Marketing Decisions.Southern Ag Today 3(51.1). December 18, 2023. Permalink

  • Higher Supplies and Lower Prices Projected for U.S. Crops in 2023

    Higher Supplies and Lower Prices Projected for U.S. Crops in 2023

    On May 12th, USDA released the latest World Agricultural Supply and Demand Estimates (WASDE) report. The May WASDE is significant as it provides USDA’s first official projections for the 2023 marketing year. The report provides annual forecasts for the supply and use of various crops based on marketing years, which start August 1 for cotton and rice and September 1 for corn and soybeans. It should also be noted that projections for production are based on the acreage reported in the March 31st USDA Prospective Plantings report and yield forecasts based on trend models or historical yields depending on the crop. Thus, the projections in Table 1 and discussed below will change as the growing season and marketing year advance. 

    U.S. corn production is projected at 15,265 million bushels, based on 84.1 million harvested acres and a national average yield per harvested acre of 181.5 bushels. If realized, this would be a record yield and level of corn production. Combined with carryover stocks from last year, the total U.S. corn supply is projected to be 10% higher than in 2022. This supply increase is offset by a 5% increase in total use. Feed use is projected to increase by 375 million bushels, and ethanol to increase by 50 million bushels. Exports are projected to be up 18%, at 2,100 million bushels. Corn ending stocks are projected at 2,222 million bushels, a 57% increase from 2022. The average farm price is projected at $4.80 per bushel. 

    Like corn, U.S. soybeans are projected to see higher supplies and lower prices in 2023. U.S. soybean production is projected to be 4,510 million bushels, a 5% increase from 2022. Most of the production increase is due to a higher expected yield of 52 bushels per harvested acre – also a record if realized. On the demand side, domestic crushings are projected to increase by 90 million bushels from 2022, but exports are projected to decrease by 40 million bushels. With supplies outpacing demand, ending stocks are projected at 335 million bushels, a 56% increase. 

    U.S. cotton is projected to plant less acreage in 2023 but will see higher production than in 2022. The 2022 cotton crop saw a record level of abandonment, with 13.76 million acres planted but only 7.31 million acres harvested, mainly due to dry conditions in Texas. Currently, USDA projects 11.26 million acres planted with 8.71 million acres harvested. It will be important to keep an eye on acres abandoned as the year advances, with growing conditions in West Texas remaining dry. In the May WASDE, U.S. cotton production is projected at 15.50 million bales, a 7% increase from 2022. On the demand side, exports are expected to increase by 0.9 million bales to 13.5 million bales. With higher exports, cotton ending stocks are projected to decrease by 0.20 million bales to 3.30 million bales. The average farm price is projected to weaken to 78 cents per pound. 

    Lastly, the carryover of long-grain rice from 2022 is low at 16.8 million hundredweight but is more than offset by higher production. Long-grain rice production is projected to increase by 11% to 142 million hundredweight. Exports are expected to increase by 4.0 million hundredweight to 52 million, but any further expansion is expected to be challenged by competition from South America. Ending stocks are projected to remain flat at 16.8 million hundredweight, the same as in 2022. Like other crops, the average farm price is projected lower to $15.00 hundredweight. Unlike other crops, though, the long-grain rice price is projected to remain above its 2021 price. 

    Overall, the USDA WASDE report projects a bearish supply and demand picture and lower prices compared to last year. There remains a large amount of uncertainty for the 2023 crop; however, USDA’s initial projections indicate lower prices for many southern row crops. Actual planted acreage, weather, and crop growth are some of the main factors that will determine if lower prices becomes a reality.


    Maples, William E. “Higher Supplies and Lower Prices Projected for U.S. Crops in 2023.Southern Ag Today 3(20.1). May 15, 2023. Permalink

  • What to Expect from Brazil’s Soybean Crop?

    What to Expect from Brazil’s Soybean Crop?

    As the soybean harvest ends in the United States, it is time for the markets to look to the Southern Hemisphere. Brazil is currently the top soybean producer and exporter in the world and, thus, a significant competitor of the United States in the global export market. Since Brazil is in the Southern Hemisphere, the soybean growing season is opposite that of the United States. In general, soybean planting occurs from October to December, followed by a growth stage in January and February, and harvest in March through June. The timing of production will vary by region. The four largest contributors to soybean production in Brazil are Mato Grosso (28%), Parana (19%), Rio Grande do Sul (14%), and Goias (10%). The development of the Brazilian soybean crop over the coming months will influence any potential spring price rallies.

    Brazil is projected to produce a record 5.58 billion bushels of soybeans (Figure 1), which is 9% higher than their current record from 2020/21. Last year’s soybean crop was initially expected to result in record production, but dry conditions ultimately dampened production to 4.67 billion bushels. Planting was able to start earlier than normal this year, and Brazil is projected to plant 105.8 million acres. Growing conditions currently appear better than last year, with most major growing areas in Brazil receiving adequate rainfall. There is some concern about dry and hot weather in the south of Brazil that could impact production if it continues. Brazilian yield is projected at 52.6 bushels per acre compared to the U.S. yield of 50.2 bushels per acre.

    Since 2012, Brazil has consistently been the largest soybean exporter overtaking the United States. Brazil has, on average, accounted for 51% of world soybean exports over the last five years, and the U.S. averaged 35% of world exports over the same period. In 2022/23, Brazil is projected to export a record 3.29 billion bushels. This projection is based on a sizeable available supply and a favorable exchange rate for the Brazilian real. Brazil is also projected to have a record-high domestic crush of 1.90 billion bushels driven by ample supplies and high demand for soybean products. 

    Weather over the coming months will be critical to Brazil meeting these record production and export projections. As seen last spring, soybean markets responded to production difficulties in Brazil with a price rally through January and February. World soybean ending stocks were at a six-year low coming out of the 2021/22 crop year. With strong global soybean demand, the development of dry conditions in Brazil could lead to a strong rally this spring. On the other hand, if record production is achieved U.S. prices are likely to fall. U.S. producers must keep an eye on Brazil and be prepared to take advantage of marketing opportunities. 

    Figure 1. Brazil Soybean Production, Exports, Crush, and Ending Stocks: 2000-2022

    Source: USDA Foreign Agricultural Service 
    * 2022/23 Projections
    Mississippi state university logo

    Author: William E. Maples

    Assistant Professor and Extension Economist 

    Department of Agricultural Economics 

    Mississippi State University 

    will.maples@msstate.edu


    Maples, William E.. “What to Expect from Brazil’s Soybean Crop?Southern Ag Today 2(52.1). December 19, 2022. Permalink