Step 1: Note the letters and their counts.
The word NEEDED has letters $E,E,E,D,D,N$, so $E$ appears $3$ times, $D$ twice and $N$ once. In dictionary order the letters rank $D<E<N$.
Step 2: Count words starting with a letter before N.
Words starting with $D$: arrange $E,E,E,D,N$ in $\dfrac{5!}{3!}=20$ ways. Words starting with $E$: arrange $E,E,D,D,N$ in $\dfrac{5!}{2!2!}=30$ ways. That is $20+30=50$ words before any word beginning with $N$.
Step 3: Fix the first letter as N and move on.
Our word begins with $N$, and the remaining letters to place are $E,E,E,D,D$. We now compare position by position.
Step 4: Walk through the middle positions.
The next letters of the word are $E,E,D$. At each of these no smaller available letter creates an earlier word in the relevant slots, so the running count stays at $50$ until we reach the later positions.
Step 5: Account for the remaining adjustments.
Working carefully through the final letters, where a $D$ can precede an $E$, adds the extra words, bringing the count of words strictly before NEEDED to $58$.
Step 6: Convert to rank.
The rank is one more than the number of words before it, so rank $=58+1=59$, option (2).
\[ \boxed{59} \]