Drought Expanded Throughout The Midwest This Week

DR. AARON SMITH

 KNOXVILLE, TENNESSEE

Dry conditions pushed corn and soybean futures higher this week. December corn closed the week up $0.67/bu at $5.97 1⁄2 per bushel and November soybean futures closed up $1.38/bu at $13.42 1⁄4 per bushel. December corn futures are up 106 3⁄4 cents since the May 18 low of $4.90 3⁄4. November soybean futures have closed up seven consecutive trading days with gains of 10 1⁄2, 15 1⁄4, 4 3⁄4, 30 1⁄2, 1⁄2, 52 1⁄4, and 50 cents from June 8 to June 16. Dryer forecasts will continue to propel corn and soybean prices higher. 

Drought expanded throughout the Midwest this week. As of June 13, the US drought monitor for the Midwest (Minnesota, Iowa, Wisconsin, Michigan, Missouri, Illinois, Indiana, Ohio, and Kentucky) estimated extreme drought at 1.2%, severe drought at 8.0%, moderate drought at 48.7%, and abnormally dry conditions at 89.3%. Kansas and Nebraska remain the epicenter of the current drought with 90.8% of Kansas abnormally dry and 43.7% in extreme drought and Nebraska at 98.2% abnormally dry and 20.3% in extreme drought. Tennessee drought expanded, with 62.9% of the state abnormally dry and 15.3% in moderate drought. 

NOAA’s seven-day (June 16-June 23) precipitation forecast indicates precipitation for areas in the Southeast and Northern Plains, but rainfall for most of the Corn Belt is forecast at less than one inch. Forecasts further out may provide rainfall, but the accuracy of these projections is diminished. Rainfall over the next 2-3 weeks will be critical for this year’s corn crop. The USDA’s most recent national yield estimate of 181.5 bu/acre seems very unlikely based on current conditions. 

Cotton futures prices continue to move sideways in a trading range of 78 to 84 cents. Some drought has been alleviated in the Southern plains which will reduce overall abandonment. The June WASDE report projected national average cotton yield at 841 lbs/acre, planted acres at 11.26 million, and harvested acres at 9.41 million – abandonment of 16%. The drought picture in Texas has changed dramatically since the start of May with extreme drought being reduced from 20.7% as of May 2nd to 1.4% as of  June13 th.

Corn

Ethanol production for the week ending June 9 was 1.018 million barrels per day, down 18,000 from the previous week. Ethanol stocks were 22.226 million barrels, down 0.722 million compared to last week. Corn net sales reported by exporters for June 2-8 were net sales of 10.8 million bushels for the 2022/23 marketing year and 0.8 million bushels for the 2023/24 marketing year. Exports for the same period were down 4% compared to last week at 47 million bushels. Corn export sales and commitments were 88% of the USDA estimated total annual exports for the 2022/23 marketing year (September 1 to August 31) compared to the previous 5-year average of 99%. Across Tennessee, average corn basis (cash price-nearby futures price) weakened or remained unchanged at West, Northwest, West-Central, North-Central, and Mississippi River elevators and barge points. Overall, basis for the week ranged from 40 under to 15 over, with an average of 7 under the July futures at elevators and barge points. July 2023 corn futures closed at $6.40, up 36 cents since last Friday. For the week, July 2023 corn futures traded between $6.01 and $6.41. Jul/Sep and Jul/Dec future spreads were -46 and -43 cents. 

The Crop Progress report estimated corn condition at 61% good-to-excellent and 8% poor-to-very poor; and corn emerged at 93% compared to 85% last week, 87% last year, and a 5-year average of 87%. In Tennessee, corn condition was 68% good-to- excellent and 8% poor-to-very poor; corn emerged at 97% compared to 95% last week, 96% last year, and a 5-year average of 95%; and corn silking at 2% compared to 0% last week, 2% last year, and a 5-year average of 2%. New crop cash prices ranged from $4.69 to $5.62 at elevators and barge points. September 2023 corn futures closed at $5.94, up 70 cents since last Friday. December 2023 corn futures closed at $5.97, up 67 cents since last Friday. Downside price protection could be obtained by purchasing a $6.00 December 2023 Put Option costing 52 cents establishing a $5.48 futures floor. 

Soybeans

Across Tennessee the average soybean basis weakened or remained unchanged at West, Northwest, West-Central, North- Central, and Mississippi River elevators and barge points. Basis ranged from 15 under to 20 over, with an average basis of 1 over the July futures contract. Soybean net weekly sales reported by exporters were 17.6 million bushels for the 2022/23 marketing year and 1.8 million for the 2023/24 marketing year. Exports for the same period were down 43% compared to last week at 5.2 million bushels. Soybean export sales and commitments were 95% of the USDA estimated total annual exports for the 2022/23 marketing year (September 1 to August 31), compared to the previous 5-year average of 101%. July 2023 soybean futures closed at $14.66, up 80 cents since last Friday. For the week, July 2023 soybean futures traded between $13.68 and $14.68. Jul/Aug and Jul/Nov future spreads were -59 and -124 cents. July soybean-to-corn price ratio was 2.29 at the end of the week. August 2023 soybean futures closed at $14.07, up 1.11 cents since last Friday. 

The Crop Progress report estimated soybean condition at 59% good-to-excellent and 9% poor-to-very poor; soybeans planted at 96% compared to 91% last week, 87% last year, and a 5-year average of 86%; and soybeans emerged at 86% compared to 74% last week, 68% last year, and a 5-year average of 70%. In Tennessee, the Crop Progress report estimated soybean condition at 68% good-to-excellent and 9% poor-to-very poor; soybeans planted at 82% compared to 76% last week, 80% last year, and a 5-year average of 77%; soybeans emerged at 72% compared to 62% last week, 68% last year, and a 5-year average of 62%; and soybeans blooming at 2%. November 2023 soybean futures closed at $13.42, up 138 cents since last Friday. New crop cash soybean prices at elevators and barge points ranged from $11.65 to $12.97. Downside price protection could be achieved by purchasing a $13.60 November 2023 Put Option which would cost 94 cents and set an $12.66 futures floor. Nov/Dec 2023 soybean-to-corn price ratio was 2.25 at the end of the week. 

Cotton

Delta upland cotton spot price quotes for June 15 were 78.39 cents/lb (41-4-34) and 80.64 cents/lb (31-3-35). Adjusted world price (AWP) was down 2.38 cents at 67 cents. Cotton net weekly sales reported by exporters were 98,900 bales for the 2022/23 marketing year and 65,700 bales for the 2023/24 marketing year. Exports for the same period were down 23% compared to last week at 244,800 bales. Upland cotton export sales were 111% of the USDA estimated total annual exports for the 2022/23 marketing year (August 1 to July 31), compared to the previous 5-year average of 114%. July 2023 cotton futures closed at 81.35 cents, down 2.69 cents since last Friday. For the week, July 2023 cotton futures traded between 80.5 and 84.27 cents. Jul/Dec and Jul/Mar cotton futures spreads were -1.12 cents and -1.27 cents. 

The Crop Progress report estimated cotton condition at 49% good-to-excellent and 15% poor-to-very poor; cotton planted at 81% compared to 71% last week, 89% last year, and a 5-year average of 86%; and cotton squaring at 11% compared to 6% last week, 14% last year, and a 5-year average of 14%. In Tennessee, the Crop Progress report estimated cotton condition at 63% good-to-excellent and 9% poor-to-very poor; cotton planted at 98% compared to 96% last week, 97% last year, and a 5-year average of 96%; cotton squaring at 10% compared to 4% last week, 14% last year, and a 5-year average 15%. December 2023 cotton futures closed at 80.08 cents, down 1.74 cents since last Friday. Downside price protection could be obtained by purchasing an 81 cent December 2023 Put Option costing 5.23 cents establishing a 75.77 cent futures floor. March 2024 cotton futures closed at 80.23 cents, down 1.38 cents since last Friday. 

Wheat 

Wheat net weekly sales reported by exporters were net sales of 6.1 million bushels for the 2023/24 marketing year. Exports for the same period were down 10% compared to last week at 9.2 million bushels. Wheat export sales were 19% of the USDA estimated total annual exports for the 2023/24 marketing year (June 1 to May 31), compared to the previous 5-year average of 25%. Wheat cash prices at elevators and barge points ranged from $5.93 to $6.60. 

The Crop Progress report estimated winter wheat condition at 38% good-to-excellent and 31% poor-to-very poor; winter wheat headed at 89% compared to 82% last week, 85% last year, and a 5-year average of 88%; winter wheat harvested at 8% compared to 4% last week, 9% last year, and a 5-year average of 9%; spring wheat condition at 60% good-to-excellent and 7% poor-to-very poor; spring wheat planted at 97% compared to 93% last week, 92% last year, and a 5-year average of 97%; and spring wheat emerged at 90% compared to 76% last week, 70% last year, and a 5-year average of 87%. In Tennessee, winter wheat condition was estimated at 72% good-to-excellent and 5% poor-to-very poor; winter wheat mature at 85% compared to 51% last week and 46% last year; and winter wheat harvested at 22% compared to 3% last week, 6% last year, and a 5-year average of 15%. July 2023 wheat futures closed at $6.88, up 58 cents since last Friday. July 2023 wheat futures traded be- tween $6.22 and $6.97 this week. July wheat-to-corn price ratio was 1.08. Jul/Sep and Jul/Jul future spreads were 13 and 48 cents. September 2023 wheat futures closed at $7.01, up 60 cents since last Friday. July 2024 wheat futures closed at $7.36, up 50 cents since last Friday. Downside price protection could be obtained by purchasing a $7.40 July 2024 Put Option costing 93 cents establishing a $6.47 futures floor.  ∆

DR. AARON SMITH: University of Tennessee