Grains

Allendale will conduct two major conferences for the 2024 AgLeaders Conference Series, January and July. The first of those two will be released tomorrow morning. This conference is online for your convenience. We're even leaving it posted indefinitely. On top of that Drew Lerner has agreed to let us post his weather portion lasting until February 1! If you've never seen Drew's presentation you will be a bit surprised by the coverage. Allendale was one of firms that pushed Drew to prominence in the ag community about 20 years ago. He remains our favored long term meteorologist. Allendale will release supply, demand, price projections and even marketing/trading recommendations for corn, soybeans, wheat, cattle and hogs tomorrow. Have you registered? https://www.allendalehub.com/winter-conference

We would not suggest Brazil's weather situation is fixed. It is not. The Center/West region will see normal/lightly above normal moisture over the next seven days. The second week forecast is generally dryer than normal. The South will see normal/lightly below normal over the next two weeks. Weather right now, during the reproductive stage for the extreme majority of their crop, is the prime determinant.

Argentina is set for mixed weather over the next two weeks.

Corn

A quiet start to the new week was seen for corn. Traders today were actively discussing the net short position by managed money and Brazil's start to 2nd crop corn planting. New lows for this long term downtrend were just made two days ago.

It may be a surprise to many but Allendale will likely reign in our “Nothing But Bearish” view for corn in the coming weeks. Now technically, from a long term balance sheet perspective, there is no reason to. Even with 2024 acreage declines ranging from -3 to -6 million we'll still see larger ending stocks for the new crop year. Additionally, you can't take anything serious off the large Brazil 2nd crop until months from now. Why would we moderate our view? 1) Prices are quite close to our general 430 target that was released months ago. Last week's trade was within 6 ¾ cents. 2) We're finally seeing those who have been quite wrong in this market, bulls, go silent. Those two reasons do not mean a rally. They are starting points for the discussion. Is there anything else to monitor in the weeks ahead? 3) How about the one argument we always have in the coming months, the viability of “trend yields”.

Corn yields are not determined by soil moisture at the time of planting. They are not determined by soil moisture during the vegetative growth stage. We know that and can prove it all day long with unargued statistics, very basic regression analysis. But markets do have to price in risk. Whether it is really warranted or not does not matter. Risk needs to be priced. Is there any “risk” currently in the soil profile? Our #1 corn state and #2 soybean state, Iowa, is dry. There are five classifications of dryness. 17% is abnormally dry. 16% is classified as moderate drought. 34% is in severe drought.

29% of the state is in the fourth grouping, extreme drought. There is zero in the last category, exceptional drought. The Southeast portion of the #3 state for corn, Nebraska, has clear dryness. While most of the Eastern Cornbelt is clear we will note the three month forecast ahead is for below normal moisture. Rebounds for a few weeks/months, even in a bear market, are often needed until each stage of the production process is cleared.

Friday afternoon's weekly Commitment of Traders report detailed positions of four general trading groups as of last Tuesday's close. The market generally focuses on managed money buying and selling. In corn, the funds hold the largest net short position they've had since 6/23/20 at -260,542 contracts. We are getting uncomfortably close to the largest net short position of 2020, -297,312. The next step was their lowest point of 2019, -322,215.

While fund buying or selling is exciting the bigger issue we must all pay attention to is whether the market is accepting or rejecting fund activity. Just because funds are selling does not mean price goes down. In our recent activity the market has strong accepted fund activity. Price direction matched the fund buying/selling direction in 11 of the past 12 weeks.

AgRural reported Brazil's 2nd crop corn planting at 4.9% complete as of Thursday. That is over last year's 1% pace.

S&P Global estimated 2024 US corn planting at 93.0 million, only -1.6 from last year. That minimal decline is not realistic for crop budgets between corn and soybeans. Allendale will release our view tomorrow.

The Buenos Aires Grains Exchange estimates 90% of Argentine corn planting is now complete. Most of the crop is in active yield development right now

El Nino and Argentine Corn Yields: Argentina plants corn mid-September through November. Reproduction, the phase where weather really matters, is in January an February. Over the past 25 years there were 8 with an ENSO reading of +0.5 during their yield determination (January). All 8 years posted above trend yields (+3.4% to +15.0%). The influence is relatively consistent.

March Corn Chart: The long term downtrend remains. A new low was made on Thursday. There is an upside intraday gap at the 12/29 close of 471 ¼ but that is not in the short term discussion. The downtrend remains in place until resistance at 466 3/4 is broken.

2022/23 Producer Marketing: Completed 2022/23 marketing year net of $7.01 (USDA seas. ave for Central IL $6.60). Previous hedges on 50% using options, 25% on 2/28/22 and 25% on 6/7/22, were lifted 7/26/22 for +56 4/5 cents (adj. to 100% of the crop nets +28 2/5 cents). Cash sales of 25% 1/18/23, 50% 1/26/23 and 25% 2/10/23 for net $6.73 via Cental IL.

2023/24 Producer Marketing: Profit of 163 7/8 cents from two prior hedges on 75% of the crop (123 cents when brought to 100% of the crop). Currently holding the third hedge on 75% enacted 11/13/23 using purchased CH 460 puts at 10 1/4/sold 520 CH calls 6 ¼ for net 4 cents. No 2023/24 cash sold. 1st hedge on 75% using short CZ23 futures were lifted on 5/1/23 for +68 4/7 (sales of 50% at 600 on 1/19/23 + 25% at 595 on 2/10/23 lifted 5/1/23 at 529 ¾). 2nd hedge on 75% using options were lifted 11/13/23 for +95 2/7 (sales of 50% on 6/16/23 using purchased CZ 560 put 35/sold CZ 640 call 27 for ((net 8 cents)) lifted 11/13/23 at 97 and 1/8 ((net 96 7/8)) + 25% 6/20/23 using purchased CZ 580 put at 41/sold 660 CZ 660 call 32 for ((net 9 cents) lifted 11/13/23 at 117 ¼ and 1/8 (net 117 1/8).

Corn Summary: Company president, Steve Georgy, will cover our 2024 corn outlook tomorrow. We'll do our best to answer the question of whether a rebound is near as well as potential upside. Please don't make a rash decision from today's comments. We are not buying yet. This would be trying to “catch a falling knife”. But we are prepping you for a light potential change in the weeks ahead. For producers we continue to hold hedges...Rich Nelson

Working Trade:

(11/30) Sold March 480 call 15, risk 19, objective 0. Closed 1.

Soybeans

Moderate gains were noted to start the week. New downtrend lows were just made on Thursday. That 1201 low was right next to psychological 1200 support.

Nine weeks of fund selling in soybeans has totaled -164,710 contracts as of last Tuesday's close. Managed Money is now net short -76,797 contracts.

AgRural estimated the active soybean harvest at 6% complete. That is over the 1.8% from last year. Let's be clear. The bulk of their soybean crop is not ready for harvest and is right now in active yield development. Remember, they plant over a three month period. On this early planted ground that is now being harvested, yields should be poor. Reproduction was active for this portion at the heart of their prior drought.

Here in January the range of reasonable Brazilian soybean crop estimates is from 149.2 - 158.5. USDA and Conab are at 157.0 and 155.3 respectively. At this time the trade is not seeing production declines at a level enough to support prices.

S&P Global estimated 2024 US soybean planting at 85.5 million, only +1.6 from last year. That minimal increase is not realistic for crop budgets between corn and soybeans. Allendale will release our view tomorrow.

El Nino and Argentine Soybean Yields: In normal years soybean planting is limited to November and December. Yield determination, weather during reproduction, is from January - March. Over the past 25 years there were 7 with an ENSO reading of +0.5 during their yield determination (February). 6 years posted above trend yields (+3.2% to +22.3%). 1 saw below trend yields (-1.3%). The influence is relatively consistent. El Nino brings above trend yields to Argentine soybeans. At this time we are not yet seeing a change from normal precipitation to above-normal.

With USDA's recent revision of the 2023 soybean crop they now have ending stocks up to 280 million bushels. This number still has a lot of potential sway involved, different than corn. We compute a 200 ending stock as implying $14.00, 250 stock at $12.95 and 300 at $12.20. In our view, soybeans are at economic value. We will note there is still considerable movement still ahead on this balance sheet.

March Soybean Chart: The chart discussion is where clear bear confidence is seen. New lows for the downtrend were made on Thursday. Prices are quite close to 1200 psychological support. Lows of 1175 ¼ from 6/8 and 1145 ¼ from 5/31 are now the only support levels ahead. Resistance for this downtrend, drawn from highs of 11/21 and 12/28, is 1278 1/2. Bulls can also point to a good sized gap left to the upside, 1290 ¾ - 1296 ¾. Past that there is another gap at the 11/22 close, 1374 ¼.

2022/23 Producer Marketing: Completed 2022/23 marketing year net of $15.08 (USDA seas ave for Central IL $14.20). Previous hedges were on 40% using options (20% on 2/14/22 and 20% on 2/28/22 lifted 7/26 for +7 1/9 cents). Adj. to 100% of the crop nets +3 5/9 cents. Cash sales of 25% on 1/3/22, 25% on 1/17/22, 25% on 2/15 and 25% on 2/23 for net $15.05 via Central IL.

2023/24 Producer Marketing: Profit of 29 cents from two prior hedges on 75% of the crop (22 5/8 cents when brought to 100% of the crop). Curently unhedged and holding cash. 1st hedges on 75% using options lifted for net +60 7/8 cents. (50% sold on 1/19/23 using 1360 Nov puts 78 7/8/sold 1180 puts 17/sold 1500 calls 40 1/8 for net 21 3/4 cents + 25% sold on 2/15/23 using 1360 Nov puts 68/sold 1180 puts 12/sold 1500 calls 35 1/2 for net 20 1/2 cents. All lifted 5/2/23 at 86 1/8 (115/17 1/2/11 3/8 for 50% and 81 ¾ (115/22 1/4/11 3/8) on 25%. 2nd hedges on 75% using options expired 10/27/23 for net -31 7/8 cents. (Sold 6/30/23 on 75% using bought 1240 November puts 47 3/8 and sold 1460 calls 15 ½ for net 31 7/8, expired at 0 on 10/27).

Soybean Summary: We still suggest this market is undervalued. The market itself, via strong confidence with lower trade, is showing its own bearish belief for now though. We are not yet ready to pick a bottom for speculative trading. For producers we are holding cash beans unhedged...Rich Nelson

Trade Recommendation:

(1/17) Stand aside.

Wheat

Wheat ended the day with mixed trade. Shipping disruptions are being discussed but this is not a reason to rally. The US Plains will soon switch from below normal temperatures to above normal. Additionally, good moisture is seen ahead.

The wheat market continues to note cargo diversions away from the Red Sea. If there was a risk of no grain being transported then wheat prices would rally. Instead, with clear confidence the market will get the grain, the market is taking the extra transportation cost off the flat export bid.

S&P Global estimated 2024 US all wheat planting at 47.225 million, -2.4 from last year. As they are using USDA's -2.2 winter wheat number this implies they expect a decline also for spring wheat. Allendale will release our view tomorrow.

SovEcon revised its view of Russian wheat exports in January down from 3.8 million tonnes to now 3.6. This is a little bigger deal than it sounds. This now makes it three months in a row where exports fell below last year. Nov was -0.9 mt from last year, Dec was -0.3 and Jan here was -0.2.

An analyst with a research firm called Kpler estimates 45% of grain ships set for passage through the Suez Canal are now being routed around the Cape of Good Hope.

The US Climate Prediction Center released the monthly update to the long term US weather forecast on Thursday. The one-month out forecast, covering only February, calls for normal temperatures from Texas through Kansas and above normal for Nebraska. Precipitation is seen as normal for the Plains. The three month forecast, February - April, shows temperatures mostly normal. Parts of Texas would be seen with below normal. Precipitation during this time is seen as above normal for Oklahoma through Nebraska and neutral/above for Texas. This would be a bearish forecast for KC wheat pricing.

Over in US soft red territory, the Eastern Cornbelt and Ohio River Valley, the temperature forecast for February is mostly normal. The Northern reaches of Illinois and Indiana, not major winter wheat areas, are seen with above normal. Important for the discussion the precipitation forecast is below normal for all areas. The three month out forecast is also a little threatening with above normal temperatures and below normal precipitation. This would be a bullish forecast for Chicago wheat pricing.

The Kremlin reports there was no prospect of Russia's involvement with any new Ukraine grain export deal. They suggested there were huge risks for any cargoes that are active. This comes in response to yesterday's story that Ukraine's ambassador to Turkey was in negotiations for a new UN sponsored deal. The official Ukraine export deal, one with Russia's involvement, ended in July.

Fall 2023 US Plantings: The first new crop report of the year was released by USDA last week. Fall 2023 winter wheat plantings, for the summer 2024 harvest, were estimated at only 34.425 million acres. This 2.2 million decline was under the 35.786 trade estimate (ALDL 37.287). Declines were noted for hard red at -1.7, soft red -0.5 and white -0.1.

Wheat Summary: Russia's wheat exports in January may not yet fall to below last year levels. We still expect it will soon. KC and Minneapolis pushed to new downtrend lows this week. Chicago, our market for “…the lows are likely in” is less than 30 cents from breaking its prior lows. We are not exactly wheat bulls. We can say we are no longer bears...Rich Nelson

Trade Recommendation:

(1/12) Stand aside.

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