US Drought Monitor Continues To Indicate Drought Concerns In A Large Portion Of The Corn Belt

DR. AARON SMITH

KNOXVILLE, TENNESSEE

After last week’s dramatic decline, from $5.94 to $4.94 3⁄4, December corn futures moved mostly sideways trading between $4.85 1⁄2 and $5.09 1⁄2. The dramatic increase in corn planted acreage (94 million acres planted nationally) limits the upside in corn markets and opens the potential for further declines. National average yield and the potential for weather induced acreage losses will provide the direction. The US drought monitor continues to indicate drought concerns in a large portion of the Corn Belt, however recent rain events have partially mitigated the impact on crops and the 5–7-day precipitation forecast has 1 to 5 inches of projected rainfall over a large area. If widespread rainfall is realized markets could easily move 25 to 50 cents lower. 

November soybeans started the week with additional gains based on the bullish soybean acreage estimate – 83.5 million acres planted – in last Fridays June Acreage report but pulled back 50 cents on Thursday and Friday. Soybean acreage provides support for domestic prices however with Brazil’s record crop dominating international markets, prices are unlikely to move substantially higher in the next few weeks. 

December cotton continues to be range bound between 77 and 84. The extreme heat in the southern plains could create production concerns but for now the trading range is likely to hold into August when updated acreage and production estimates will be provided by USDA. Demand continues to remain elusive for global markets. Demand will hold the key for price direction for the 2023/24 cotton marketing year. 

Corn 

Ethanol production for the week ending June 30 was 1.06 million barrels per day, up 8,000 barrels from the previous week. Ethanol stocks were 22.26 million barrels, down 0.719 million compared to last week. Corn net sales reported by exporters for June 23-29 were net sales of 9.9 million bushels for the 2022/23 marketing year and 16.5 million bushels for the 2023/24 marketing year. Exports for the same period were up 17% compared to last week at 27.9 million bushels. Corn export sales and commitments were 89% 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%. Across Tennessee, average corn basis (cash price-nearby futures price) weakened or remained unchanged at West, Northwest, West-Central, and Mississippi River elevators and barge points and strengthened at North-Central elevators and barge points. Overall, basis for the week ranged from 10 under to 49 over, with an average of even the September futures at elevators and barge points. 

The Crop Progress report estimated corn condition at 51% good-to-excellent and 15% poor-to-very poor; and corn silking at 8% compared to 4% last week, 7% last year, and a 5-year average of 9%. In Tennessee, corn condition was 72% good-to-excellent and 6% poor-to-very poor; corn silking was 51% compared to 18% last week, 41% last year, and a 5-year average of 46%; and corn dough at 4% compared to 2% last year and a 5-year average of 5%. New crop cash prices ranged from $4.08 to $4.91 at elevators and barge points. September 2023 corn futures closed at $4.87, down 1 cent since last Friday. For the week, September 2023 corn futures traded between $4.79 and $5.02. Sep/Dec and Sep/Mar future spreads were 19 and 7 cents. December 2023 corn futures closed at $4.94, unchanged since last Friday. Downside price protection could be obtained by purchasing a $5.00 December 2023 Put Option costing 32 cents establishing a $4.68 futures floor. March 2024 corn futures closed at $5.06, unchanged since last Friday. 

Soybeans

Across Tennessee average soybean basis weakened or remained unchanged at West, Northwest, West-Central, and Mississippi River elevators and barge points and strengthened at North-Central elevators and barge points. Basis ranged from 50 to 110 over, with an average basis of 86 over the August futures contract. Soybean net weekly sales reported by exporters were 6.9 million bushels for the 2022/23 marketing year and 21.8 million bushels for the 2023/24 marketing year. Exports for the same period were up 39% compared to last week at 9.8 million bushels. Soybean export sales and commitments were 96% 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 103%. August 2023 soybean futures closed at $14.27, down 15 cents since last Friday. For the week, August 2023 soybean futures traded between $14.25 and $15.04. Aug/Sep and Aug/Nov future spreads were -89 and -110 cents. September 2023 soybean futures closed at $13.38, down 17 cents since last Friday. September soybean-to-corn price ratio was 2.75 at the end of the week. 

The Crop Progress report estimated soybean condition at 50% good-to-excellent and 15% poor-to-very poor; soybeans blooming at 24% compared to 10% last week, 15% last year, and a 5-year average of 20%; and soybeans setting pods at 4% compared to 3% last year and a 5-year average of 2%. In Tennessee, the Crop Progress report estimated soybean condition at 71% good- to-excellent and 6% poor-to-very poor; soybeans emerged at 91% compared to 83% last week, 90% last year, and a 5-year average of 88%; soybeans blooming at 39%, compared to 24% last week, 21% last year, and a 5-year average of 19%; and soybeans setting pods at 8% compared to 1% last year and a 5-year average of 1%. November 2023 soybean futures closed at $13.17, down 26 cents since last Friday. New crop cash soybean prices at elevators and barge points ranged from $12.92 to $13.34. Downside price protection could be achieved by purchasing a $13.20 November 2023 Put Option which would cost 59 cents and set a $12.61 futures floor. Nov/Dec 2023 soybean-to-corn price ratio was 2.67 at the end of the week. 

Cotton

Delta upland cotton spot price quotes for July 6 were 80.13 cents/lb (41-4-34) and 82.88 cents/lb (31-3-35). Adjusted world price (AWP) was up 2.24 cents at 65.81 cents. Cotton net weekly sales reported by exporters were 109,200 bales for the 2022/23 marketing year and 130,400 bales for the 2023/24 marketing year. Exports for the same period were up 15% compared to last week at 260,100 bales. Upland cotton export sales were 113% 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%. 

The Crop Progress report estimated cotton condition at 48% good-to-excellent and 21% poor-to-very poor; cotton squaring at 42% compared to 28% last week, 42% last year, and a 5-year average of 42%; and cotton setting bolls at 11% compared to 5% last week, 12% last year, and a 5-year average of 11%. In Tennessee, the Crop Progress report estimated cotton condition at 64% good-to-excellent and 13% poor-to-very poor; cotton squaring at 55% compared to 33% last week, 42% last year, and a 5- year average of 49%; and cotton setting bolls at 15% compared to 6% last week, 9% last year, and a 5-year average of 7%. December 2023 cotton futures closed at 81.17 cents, up 0.8 cents since last Friday. For the week, December 2023 cotton futures traded between 79.21 and 81.94 cents. Downside price protection could be obtained by purchasing an 82 cent December 2023 Put Option costing 4.65 cents establishing a 77.35 cent futures floor. March 2024 cotton futures closed at 80.98 cents, up 0.73 cents since last Friday. May 2023 cotton futures closed at 81.04 cents, up 0.70 cents since last Friday. Dec/Mar and Dec/May cotton futures spreads were -0.19 cents and -0.13 cents. 

Wheat 

Wheat net weekly sales reported by exporters were net sales of 14.9 million bushels for the 2023/24 marketing year and net sales cancelations of 0.1 million bushels. Exports for the same period were up 94% compared to last week at 11.3 million bushels. Wheat export sales were 22% 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 30%. Wheat cash prices at elevators and barge points ranged from $5.86 to $6.42. 

The Crop Progress report estimated winter wheat condition at 40% good-to-excellent and 29% poor-to-very poor; winter wheat harvested at 37% compared to 24% last week, 52% last year, and a 5-year average of 46%; spring wheat condition at 48% good-to-excellent and 12% poor-to-very poor; and spring wheat headed at 51% compared to 31% last week, 18% last year, and a 5-year average of 46%. In Tennessee, winter wheat harvested was estimated at 88% compared to 71% last week, 95% last year, and a 5-year average of 93%. September 2023 wheat futures closed at $6.49, down 2 cents since last Friday. September 2023 wheat futures traded between $6.38 and $6.80 this week. September wheat-to-corn price ratio was 1.33. Sep/Dec and Sep/Jul future spreads were 17 and 44 cents. December 2023 wheat futures closed at $6.66, down 3 cents since last Friday. July 2024 wheat futures closed at $6.93, down 4 cents since last Friday. Downside price protection could be obtained by purchasing a $7.00 July 2024 Put Option costing 70 cents establishing a $6.30 futures floor. ∆

DR. AARON SMITH: University of Tennessee