Drought Remains At The Forefront Of US corn And soybean Markets

DR. AARON SMITH

KNOXVILLE, TENNESSEE

Drought remains at the forefront of US corn and soybean markets. As of July 25, 59% of the US corn crop was estimated to be in drought (1% exceptional drought, 7% extreme drought, 14% severe drought, and 36%
moderate drought) and 53% of the soybean crop was in drought (1% exceptional drought, 7% extreme drought, 13% severe drought, and 33% moderate drought). With limited precipitation (less than 1 inch in most locations) in the seven-day NOAA forecast and high temperatures, further crop stress is likely to occur. The weather uncertainty and sporadic rainfall has contributed to price volatility. Over, the past ten trading days, December corn has closed the day: -7 3⁄4, +28 1⁄2, +18 1⁄2, -6 3⁄4, -10, +32, - 3, -17, -6, and -12 cents. The net move over the ten-day period was +11 cents but the daily price volatility has the perception of a larger overall move. 

Since the start of July, the December cotton futures contract increased 9.88 cents, from 78.51 cents to a high of 88.39 cents on Thursday, July 27. The December contract declined 3.67 cents at the end of Thursday and Friday settling back into the 7-month trading range of 77 to 87 cents. Weak export sales were a contributor to the decline. Currently, only 20% of cotton areas are in drought with 19% in the moderate or severe category. Kansas, Missouri, New Mexico, and Oklahoma comprise the most drought-stricken area in the Cotton Belt. High temperatures could change the drought picture over the next few weeks, particularly in Texas. Based on recent market moves and weather uncertainty, August is setting up for a potential breakout in cotton markets. 

Corn 

Ethanol production for the week ending July 21 was 1.094 million barrels per day, up 24,000 barrels from the previous week. Ethanol stocks were 23.228 million barrels, up 0.062 million compared to last week. Corn net sales reported by exporters for July 14-20 were net sales of 12.4 million bushels for the 2022/23 marketing year and 13.2 million bushels for the 2023/24 marketing year. Exports for the same period were up 7% compared to last week at 16.2 million bushels. Corn 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 102%. Across Tennessee, average corn basis (cash price-nearby futures price) was unchanged at West, Northwest, West-Central, North-Central, and Mississippi River elevators and barge points. Overall, basis for the week ranged from 20 under to 10 over, with an average of 7 under the September futures at elevators and barge points. 

The Crop Progress report estimated corn condition at 57% good-to-excellent and 13% poor-to-very poor; corn silking at 68% compared to 47% last week, 58% last year, and a 5-year average of 65%; and corn dough at 16% compared to 7% last week, 12% last year, and a 5-year average of 14%. In Tennessee, corn condition was 71% good-to-excellent and 8% poor-to-very poor; corn silking was 91% compared to 84% last week, 91% last year, and a 5-year average of 89%; and corn dough at 52% com- pared to 34% last week, 46% last year, and a 5-year average of 50%. New crop cash prices ranged from $4.95 to $5.53 at eleva- tors and barge points. September 2023 corn futures closed at $5.21, down 6 cents since last Friday. For the week, September 2023 corn futures traded between $5.16 and $5.64. Sep/Dec and Sep/Mar future spreads were 9 and 20 cents. December 2023 corn futures closed at $5.30, down 6 cents since last Friday. Downside price protection could be obtained by purchasing a $5.40 December 2023 Put Option costing 50 cents establishing a $4.90 futures floor. March 2024 corn futures closed at $5.41, down 6 cents since last Friday. 

Soybeans

Across Tennessee average soybean basis weakened or remained unchanged at West, Northwest, West-Central, North-Central, and Mississippi River elevators and barge points. Basis ranged from 25 under to 15 over, with an average basis of 25 under the August futures contract. Soybean net weekly sales reported by exporters were 7.3 million bushels for the 2022/23 marketing year and 20 million bushels for the 2023/24 marketing year. Exports for the same period were up 58% compared to last week at 13.9 million bushels. Soybean export sales and commitments were 98% 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 $14.86, down 15 cents since last Friday. For the week, August 2023 soybean futures traded between $14.83 and $15.80. Aug/Sep and Aug/Nov future spreads were -53 and -104 cents. September 2023 soybean futures closed at $14.33, up 4 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 54% good-to-excellent and 14% poor-to-very poor; soybeans blooming at 70% compared to 56% last week, 62% last year, and a 5-year average of 66%; and soybeans setting pods at 35% com- pared to 20% last week, 24% last year, and a 5-year average of 31%. In Tennessee, the Crop Progress report estimated soybean condition at 70% good-to-excellent and 7% poor-to-very poor; soybeans blooming at 73%, compared to 64% last week, 67% last year, and a 5-year average of 63%; and soybeans setting pods at 43% compared to 30% last week, 35% last year, and a 5- year average of 33%. November 2023 soybean futures closed at $13.82, down 19 cents since last Friday. New crop cash soy- bean prices at elevators and barge points ranged from $13.51 to $14.11. Downside price protection could be achieved by purchasing a $13.90 November 2023 Put Option which would cost 56 cents and set a $13.34 futures floor. Nov/Dec 2023 soybean- to-corn price ratio was 2.61 at the end of the week. 

Cotton

North Delta upland cotton spot price quotes for July 27 were 83.62 cents/lb (41-4-34) and 85.87 cents/lb (31-3-35). Adjusted world price (AWP) was up 3.56 cents at 69.74 cents. Cotton net weekly sales reported by exporters were net sales cancellations of 18,700 bales for the 2022/23 marketing year and net sales of 80,600 bales for the 2023/24 marketing year. Exports for the same period were down 15% compared to last week at 197,800 bales. Upland cotton export sales were 115% 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 115%. 

The Crop Progress report estimated cotton condition at 46% good-to-excellent and 24% poor-to-very poor; cotton squaring at 78% compared to 64% last week, 79% last year, and a 5-year average of 79%; and cotton setting bolls at 37% compared to 25% last week, 46% last year, and a 5-year average of 39%. In Tennessee, the Crop Progress report estimated cotton condition at 64% good-to-excellent and 12% poor-to-very poor; cotton squaring at 89% compared to 83% last week, 84% last year, and a 5- year average of 84%; and cotton setting bolls at 43% compared to 30% last week, 49% last year, and a 5-year average of 40%. December 2023 cotton futures closed at 84.26 cents, down 0.22 cents since last Friday. For the week, December 2023 cotton futures traded between 84.01 and 88.39 cents. Downside price protection could be obtained by purchasing an 85 cent December 2023 Put Option costing 4.4 cents establishing an 80.6 cent futures floor. March 2024 cotton futures closed at 84.41 cents, down 0.02 cents since last Friday. May 2023 cotton futures closed at 84.45 cents, down 0.03 cents since last Friday. Dec/Mar and Dec/May cotton futures spreads were 0.15 cents and 0.19 cents. 

Wheat 

Wheat net weekly sales reported by exporters were net sales of 8.6 million bushels for the 2023/24 marketing year. Exports for the same period were up 67% compared to last week at 14.5 million bushels. Wheat export sales were 28% 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 37%. Wheat cash prices at elevators and barge points ranged from $6.32 to $7.13. 

The Crop Progress report estimated winter wheat harvested at 68% compared to 56% last week, 76% last year, and a 5-year average of 77%; spring wheat condition at 49% good-to-excellent and 16% poor-to-very poor; and spring wheat headed at 94% compared to 86% last week, 83% last year, and a 5-year average of 93%. September 2023 wheat futures closed at $7.04, up 7 cents since last Friday. September 2023 wheat futures traded between $6.89 and $7.77 this week. September wheat-to-corn price ratio was 1.35. Sep/Dec and Sep/Jul future spreads were 24 and 50 cents. December 2023 wheat futures closed at $7.28, up 11 cents since last Friday. July 2024 wheat futures closed at $7.54, up 15 cents since last Friday. Downside price protection could be obtained by purchasing a $7.60 July 2024 Put Option costing 81 cents establishing a $6.79 futures floor.  ∆

DR. AARON SMITH: University of Tennessee