Drought Has Become Prevalent In The Southeast And Middle Atlantic

DR. AARON SMITH

KNOXVILLE, TENNESSEE

Drought has crept into Tennessee. The July 2nd U.S. Drought Monitor indicated that 64.5% of Tennessee was abnormally dry or worse. This includes 25.8% of the state classified as in moderate drought or 16% of Tennessee corn production, 3% of cotton production, and 13% of soybean production. The southern and eastern portion of the state has been the hardest hit by drought. Looking at the 7-day NOAA precipitation forecast, indicates 0.5 to 1 inch for the eastern half of the state and less than a half an inch for the western half. Limited precipitation in the next week will expand the drought area in the state and has the potential to continue to adversely affect harvested acres and yield potential. Looking at the 30-day NOAA forecast, issued June 30, indicates a normal probability of precipitation with above average temperatures for the state. 

Nationally, only 7% of corn production and 9% of soybean production in the US is estimated to be in drought compared to 67% and 60% one year ago. Drought has become prevalent in the Southeast and Middle Atlantic with a band of drought across the Eastern Corn Belt. July will be critical for price direction as most of U.S. corn production will enter pollination. 

December corn futures moved sideways this week trading between $4.14 and $4.27. Prior to this week, the previous seven trading days saw declines in December corn futures of 11, 3 1⁄2, 1 1⁄2, 8 3⁄4, 6 1⁄2, 2 3⁄4, and 13 cents (down 47 cents). November soybeans rose this week with daily increases of 7, 2, 8 1⁄2, and 8 1⁄4 cents (up 26.75 cents). Weather will continue to be the primary driver of corn and soybean price direction. 

December cotton prices fell below 72 cents on Friday closing the week at 70.98 cents. Improved precipitation forecasts for the southern plains and tepid export demand continue to be the primary driver of lower cotton prices. A wild card for cotton prices will be the frequency and severity of hurricanes this summer and fall. Hurricane Beryl is projected to reach Texas on Sunday or Monday. 

Corn

Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at Northwest, West, West-Central, North-Central, and Mississippi River elevators and barge points. Overall, basis for the week ranged from 79 under to 8 over, with an average of 20 under the September futures at elevators and barge points. Ethanol production for the week ending June 28 was 1.064 million barrels per day, up 21,000 from the previous week. Ethanol stocks were 23.594 million barrels, up 0.171 million barrels compared to last week. Corn net sales reported by exporters for June 21-27 were net sales of 14.1 million bushels for the 2023/24 marketing year and 12.3 million bushels for the 2024/25 marketing year. Exports for the same period were down 24% compared to last week at 35.2 million bushels. Corn export sales and commitments were 98% of the USDA estimated total annual exports for the 2023/24 marketing year (September 1 to August 31) compared to the previous 5-year average of 101%. September 2024 corn futures closed at $4.10, up 3 cents since last Friday. Sep/Dec and Sep/Mar future spreads were 14 and 28 cents. For the week September 2024 corn futures traded between $4.01 and $4.13. 

The Crop Progress report estimated corn condition at 67% good-to-excellent and 9% poor-to-very poor; and corn silking at 11% compared to 4% last week, 7% last year, and a 5-year average of 6%. In Tennessee, corn condition was estimated at 65% good- to-excellent and 9% poor-to-very poor; corn silking at 53% compared to 34% last week, 42% last year, and a 5-year average of 37%; and corn dough at 3% compared to 3% last year and a 5-year average of 3%. New crop cash prices ranged from $3.39 to $4.02 at elevators and barge points. December 2024 corn futures closed at $4.24, up 4 cents since last Friday. Downside price protection could be obtained by purchasing a $4.30 December 2024 Put Option costing 25 cents establishing a $4.05 futures floor. March 2025 corn futures closed at $4.38, up 4 cents since last Friday. 

Soybeans

Across Tennessee the average soybean basis strengthened or remained unchanged at Northwest, West, West-Central, and Mississippi River elevators and barge points and weakened at North-Central elevators and barge points. Basis ranged from 25 under to 20 over the August futures contract, with an average basis at the end of the week of 5 under. Soybean net weekly sales reported by exporters were net sales of 8.4 million bushels for the 2023/24 marketing year and 5.5 million bushels for the 2024/25 marketing year. Exports for the same period were down 22% compared to last week at 11.2 million bushels. Soybean export sales and commitments were 97% of the USDA estimated total annual exports for the 2023/24 marketing year (September 1 to August 31), compared to the previous 5-year average of 102%. August 2024 soybean futures closed at $11.66, up 33 cents since last Friday. For the week August 2024 soybean futures traded between $11.29 and $11.69. September 2024 soybean-to-corn price ratio was 2.75 at the end of the week. Aug/Sep and Aug/Nov future spreads were -40 and -37 cents. September 2024 soybean futures closed at $11.26, up 26 cents since last Friday.

The Crop Progress report estimated soybean condition at 67% good-to-excellent and 8% poor-to-very poor; soybeans emerged at 95% compared to 90% last week, 97% last year, and a 5-year average of 93%; soybeans blooming at 20% compared to 8% last week, 20% last year, and a 5-year average of 15%; and soybeans setting pods at 3% compared to 3% last year and a 5-year average of 2%. In Tennessee, soybean condition was estimated at 71% good-to-excellent and 7% poor-to-very poor; soybean planting at 95% compared to 90% last week, 96% last year, and a 5-year average of 95%; soybeans emerged at 87% compared to 78% last week, 89% last year, and a 5-year average of 86%; soybean blooming at 41% compared to 27% last week, 35% last year, and a 5-year average of 19%; and soybeans setting pods at 5% compared to 6% last year and a 5-year average of 2%. New crop cash soybean prices at elevators and barge points ranged from $10.61 to $11.14. November 2024 soybean futures closed at $11.29, up 25 cents since last Friday. Downside price protection could be achieved by purchasing an $11.40 November 2024 Put Option which would cost 47 cents and set a $10.93 futures floor. Nov/Dec soybean-to-corn price ratio was 2.66 at the end of the week. 

Cotton

North Delta upland cotton spot price quotes for July 3 were 64.85 cents/lb (41-4-34) and 66.85 cents/lb (31-3-35). Adjusted World Price (AWP) decreased 0.43 cents to 57.8 cents. Cotton net weekly sales reported by exporters were 115,400 bales for the 2023/24 marketing year and 56,900 bales for the 2024/25 marketing year. Exports for the same period were up 25% compared to last week at 175,800 bales. Upland cotton export sales were 117% of the USDA estimated total annual exports for the 2023/24 marketing year (August 1 to July 31), compared to the previous 5-year average of 116%. 

The Crop Progress report estimated cotton condition at 50% good-to-excellent and 17% poor-to-very poor; cotton planted at 97% compared to 94% last week, 98% last year, and a 5-year average of 99%; cotton squaring at 43% compared to 30% last week, 38% last year, and a 5-year average of 38%; and cotton setting bolls at 11% compared to 8% last week, 9% last year, and a 5-year average of 9%. In Tennessee, cotton condition was estimated at 62% good-to-excellent and 10% poor-to-very poor; cotton planting was estimated at 100% compared to 99% last week, 100% last year, and a 5-year average of 100%; cotton squaring at 55% compared to 40% last week, 49% last year, and a 5-year average of 41%; and cotton setting bolls at 9% com- pared, 2% last week, 12% last year, and a 5-year average of 6%. December 2024 cotton futures closed at 70.98 cents, down 1.71 cents since last Friday. For the week December 2024 cotton futures traded between 70.83 and 73.75 cents. Dec/Mar and Dec/May cotton futures spreads were 1.73 cents and 3.12 cents. Downside price protection could be obtained by purchasing a 73 cent December 2024 Put Option costing 4.14 cents establishing a 68.86 cent futures floor. March 2025 cotton futures closed at 72.71 cents, down 1.65 cents since last Friday. May 2025 cotton futures closed at 74.1 cents, down 1.59 cents since last Friday. 

Wheat 

 Wheat net weekly sales reported by exporters were net sales of 29.6 million bushels for the 2024/25 marketing year. Exports for the same period were down 4% compared to last week at 11.3 million bushels. Wheat export sales were 32% of the USDA estimated total annual exports for the 2024/25 marketing year (June 1 to May 31), compared to the previous 5-year average of 30%. The Crop Progress report estimated winter wheat condition at 51% good-to-excellent and 15% poor-to-very poor; winter wheat harvested at 54% compared to 40% last week, 33% last year, and a 5-year average of 39%; spring wheat condition at 72% good-to-excellent compared to 4% poor-to-very poor; and spring wheat headed at 38% compared to 18% last week, 45% last year, and a 5-year average of 37%. In Tennessee, winter wheat harvested was estimated at 93% compared to 78% last week, 83% last year, and a 5-year average of 88%. Wheat cash prices at elevators and barge points ranged from $4.99 to $5.55. September 2024 wheat futures closed at $5.90, up 17 cents since last Friday. September wheat-to-corn price ratio was 1.44. Sep/Mar and Sep/Jul future spreads were 42 and 54 cents. September 2024 wheat futures traded between $5.67 and $5.92 this week. 

March 2025 wheat futures closed at $6.32, up 17 cents since last Friday. July 2025 wheat futures closed at $6.44, up 16 cents since last Friday. Downside price protection could be obtained by purchasing a $6.50 July 2025 Put Option costing 70 cents establishing a $5.80 futures floor.   ∆

DR. AARON SMITH: University of Kentucky