Argentina devalues the peso. Federal Reserve expects rate cuts in 2024.

Grains

The Federal Reserve policy making board ended its last meeting of 2023 with no change in short term rates. That was the trade expectation. The focus for the trade today was on plans for 2024. 17 of 19 voting members of the Federal Open Market Committee expected lower interest rates by the end of 2024. The expectation is the current policy of 5.25% - 5.50% short term interest rates is expected to drop by -0.75% over three separate declines in 2024. The general financial trade will view this as a confirmation of the current view of a “soft landing”.

As we inch closer to that all-important January/February weather window for Brazil's soybean and 1st crop corn yield determination period there is no real change in the forecast ahead from current conditions. This fits in with Drew's latest long term forecast released back on December 1. For week one ahead clearly below normal rains area seen for the dry Center/West. Next week is normal to lightly below normal for that region. Allendale is assuming some level of lightly below trend yields for this region. For the wet South the next two weeks may bring a little relief, lightly below normal rains.

The forecast for this week's Argentine rains remains largeOver three separate systems, ending on Monday, Drew Lerner forecasts 1.5 - 4.0 inches will be seen across the three main grain production provinces. Cordoba will see normal to lightly above normal. Buenos Aires, #2 for corn and tied for #1 in soybeans, will see clearly above normal rains with 3 - 4 inches over most areas. Santa Fe, a distant #3 producer, will see 2 - 3. Next week will see normal to very lightly below normal for these three areas. We have zero concern with Argentine yields at this time. As a reminder, strong El Nino years like this generally bring above-normal moisture and above trend yields. If we see above normal rains consistently we will up our forecast.

Corn

March corn left a small ¼ cent intraday gap to yesterday's 481 ½ close today. Lightly higher trade was noted for futures but this market is still having trouble testing upside resistance.

Argentina's government devalued the Argentine peso today by 50%. This makes them more competitive on the export market. We will point out they are now considering breaking a prior promise for no increase in grain export taxes. Again, they have not raise them. They are considering them. Argentina is the #3 corn exporter.

USDA's whole-year corn for ethanol goal, 5.325 billion bushels, would be +2.9% year/year. While we did have a good early-year start the remainder of the year still needs a strong +2.5% year/year pace. Ethanol production has been on a weaker-than-needed pace for now nine weeks. It has run +0.6% year/year during these recent weeks. Today's report, included in that nine week analysis, showed last week's ethanol production at 1.074 million barrels per day. That was a little better than recent weeks but still below where we need to be at +1.2% year/year. If the remainder of the year runs +1.0% we'll miss USDA's goal by 97 million bushels. If they run even with last year the miss will be 149. Allendale currently has a miss of 25 on our books.

Weekly export sales tomorrow cover 12/1 - 12/7 activity. The trade expects 800,000 - 1,600,000 tonnes in sales for this period. The range of estimates would be from -19% to +61% vs. the five year average for that week. Tomorrow's report should continue the pace from the prior 10 weeks of positive numbers, +43% vs. the five year average. To meet USDA's current whole-year goal remaining sales need to run -1% vs. average.

For Brazil's crop USDA left their view from November,129.0 million tonnes, unchanged last week. Conab last week lowered theirs from 119.066 to 118.528. They have both been at odds with corn estimates for some time. Heck, they're even a bit off from each other for the completed 2023 harvest numbers. But the general message is still the same. No one is really lowering their starting estimates much. Over the past 30 days the private trade is 119.3 - 128.7 depending on which government number they were starting from. We do not view the 112.51 guess from Patria Agronegocious on 11/30 as realistic.

El Nino and Argentine Corn Yields: Argentina plants corn mid-September through November. 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.

USDA lowered US ending stocks by 25 million bushels to now 2.131 billion. Only an adjustment for exports was noted. While there will be further export estimate increases ahead Allendale warns they may be countered by for ethanol decreases. No matter the mix of changes ahead for exports or ethanol the general story for the year has yet to change. Anything over 1.8 billion bushels suggests economic value under 410 for futures. With the market balancing its concerns with South American weather we see a reasonable downside target at 430.

March Corn Seasonal: Allendale monitors seasonal price factors but does not adhere to them religiously. For corn the seasonal is for a harvest low October 3, minor rally to October 23 then retest of the harvest low on December 7. The 15 year seasonal suggests that December low is the major low and higher prices into spring. This year's price pattern since harvest is moderately similar. The 9/19 harvest low was broken by 12 cents to the current 11/19 low. Separate from our view on fundamentals the seasonal would suggest higher prices into spring.

March Corn Chart: The long term downtrend remains. There is no breakout yet from recent highs which are minor resistance at 493 ¼ - 496 ½. Last week's trade rejected 493 ¾ and 492 upside attempts. Today's trade fell enough to fill the small downside intraday gap from the 12/11 close of 481 ½. Main support is the main low from 11/29, 470 ½. We will point out today's lower trade was made with a gap lower open. We now have a minor upside intraday gap to the 12/12 close of 485 ¼.

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: We can agree with a light psychological premium in corn from the Brazil story. It is quite difficult to make this a “buy US corn” story at this time though. While many are looking at the seasonal charts with hope we are skeptical of them working this year. At best, perhaps sideways or a lower than expected downtrend. Our general discussion of 430 futures for a target remains. For producers we continue to hold hedges...Rich Nelson

Working Trade:

(11/30) Sold March 480 call 15, risk 28, objective 0. Closed 14 1/4.

Soybeans

Argentina's decision to sharply devalue the Argentine peso pressured US soymeal and soyoil. March soybeans filled the downside gap to the 12/8 close today then rebounded off that gap fill.

USDA reported an overnight export sale of 125,000 tonnes to an Unknown buyer. Daily overnight sales have been reported for now six days in a row. For our current week we have 455,000 tonnes in overnight sales. The prior week was 393,000.

Argentina's government devalued the peso vs. the US dollar by 50% today. This makes them more competitive on the export market. They are the world's #1 exporter of soymeal and soyoil. We will point out the new Argentine government is considering a raise in non-oilseed export tariffs.The grain industry is expected to meet with the new government tonight.

Weekly export sales tomorrow are expected 900,000 - 1,800,000 tonnes. This report covers activity from Friday 12/1 - Thursday 12/7. Including the Friday 12/8 overnight sale, which is usually included in the prior week, there were three overnight sales of 393,000 that hit in this time. The range of estimates would be from -20% to +60% vs. the five year average for that week. The prior four weeks have held a very strong pace of new sales, +91% vs. average. To meet USDA's current whole-year goal remaining sales need to be over -15% vs. average. The general grain trade is resistant to believing large increases in US sales are warranted. These recent positive sales appear to be more short term related. Brazil still holds a general price advantage vs. the US. A drying Mississippi river and the Panama Canal issue are concerns.

Last week USDA lowered their Brazil soybean productino view from 163.0 to 161.0. Conab lowered their prior 162.42 view to 160.77. Bulls would be disappointed by the lack of serious declines so far. We have no problem with these minimal declines though. They are completely reasonable given that yields are not really determined by weather during the vegetative growth stage. Weather specifically during the reproductive phase, January/early-February, is the key yield determinant. Allendale's current worst case scenario has only been -4% so far, 156.5. Yes, we do expect that number to decline. But we can't do it until we see next month's weather show.

USDA recently left their US ending stock forecast unchanged at 245. Domestic crush is a little behind their whole-year goal. Export sales, at least in the recent four weeks are quite strong. USDA is holding from export increases as Brazil still holds a better export price as the Mississippi/Panama Canal dryness issues remain. Unlike corn, the soybean balance sheet is still very much in play with Brazil’s weather likely a key influence. We compute a 200 ending stock as implying 1400 futures, 220 at 1360 and 250 at 1295. We would expect prices to hold a light premium over this implied 1295 price in the coming weeks.

El Nino and Argentine Soybean Yields: 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 normal El Nino above-normal.

March Soybean Seasonal: Allendale monitors seasonal price factors but does not adhere to them religiously. The general price pattern for soybeans is different than corn. Here, a major harvest low is generally made October 3. After a minor rally to October 23 there is one last minor bear move to November 13. That moderate move down to November 13 does not take out harvest lows and is a spring board for higher trade into spring. The 2023 contract has a harvest low posted on 10/11 and a rejected rally to 11/15. Separate from any fundamental based views seasonal traders would be looking for low.

March Soybean Chart: The general multi-month trend for soybeans is sideways. There is a three week downtrend still in place. Today's lower move filled the downside intraday gap left from 12/8 at 1323. Positive, it rebounded after filling the gap. Support on the chart is at two places, the recent 12/7 low of 1311 ¾ and the 10/11 major low at 1282 ½. Bulls would like to discuss a move to at least the intraday gap left from the 11/22 close of 1374 ¼. After that we have resistance from the 11/15 high of 1410 ¾ then others.

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: Let's get the upside intraday gap filled. Beyond that point we wonder if we'll have to wait for January before seeing this discussion of 1400. There are still a lot of ups and downs ahead as we near the very important January weather window for Brazil. If the forecast turns back to normal precipitation then you can validly remove all risk premium. For producers we are holding cash beans unhedged...Rich Nelson

Working Trade:

(11/21) Sold March 1300 soybean put 17, risk 36, objective 0. Closed 29 3/8.

Wheat

Argentina's decision to devalue the peso by 50% pressured US grains today. A small secondary point was a higher production estimate from one of their exhanges. Good rains are directly ahead for portions of the US Plains. They may return again in the 11 - 15 day timeframe. Weekly export sales tomorrow should be positive, fully expected.

Argentina's government devalued the Argentine peso today by 50%. This makes them more competitive on the export market. They are traditionally the world's #6 wheat exporter. We will point out they are now considering breaking a prior promise for no increase in grain export taxes. Again, they have not raise them. They are considering it.

The Rosario Grains Exchange raised its view of the soon to be completed Q4 Argentine wheat harvest from 13.5 million tonnes to 14.5. We hesitate to suggest this was a primary driver of price. It simply gets them closer to the Buenos Aires Grains Exchange's 14.7 and USDA's current 15.0.

StoneX lowered its view of the Brazilian wheat crop from 9.28 million tonnes to now 8.59. This brings them closer to USDA's 8.4. This is still under the prior year's large 10.6 crop.

Yesterday's talk that Algeria purchased 530,000 - 930,000 tonnes of milling wheat has now been corrected to the high end of estimates, 910,000 - 9300,000. This is a stepped up buying pattern. Last week on December 6 they bought 450,000 – 500,000. The purchase before that, November 7, was 180,000 – 580,000.

Weekly export sales tomorrow are expected at a strong 1,200,000 - 1,600,000 tonnes. This holds the 1.1 million tonnes sold to China last week. This range of estimates would be +111% vs. the 568,408 five year average sale for that week. The prior 19 weeks have held an improved pace of -2% from average. To meet USDA's current whole-year goal we only need remaining year sales -20%.

USDA recently lowered US ending stocks for this old crop 2023/24 marketing year by 25 million bushels to now 659. This is reasonable given recent China buys.

March Chicago Wheat Seasonal: Allendale monitors seasonal price factors but does not adhere to them religiously. After a minor peak on October 21 this is generally a bear market into July. For KC the March contract's seasonal break is limited from October 23 to December 8. On the July KC there is a similar break into December 8 then a moderate rally to March 4. That rally is generally a major peak for sharp bear move to new contract lows into July.

Wheat Summary: We are still suggesting a changed view of this wheat market. Separate from China's purchases last week we do agree with the view of this 18 month downtrend in wheat prices coming to an end. It is likely Russian exports will subside in the coming months, even more than they seasonally do. Additionally, a changing view of US interest rates later in 2024 could add support. It is no coincidence that the early 2022 peak in wheat prices coincided with the Federal Reserves interest rate increases. We are not exactly wheat bulls. We can say we are no longer bears...Rich Nelson

Trade Recommendation:

(11/17) Stand aside.