Argentine crop estimates raised. Poor US weekly export sales reported.
Grains
We would not suggest Brazil's weather situation is fixed. It is not. The Center/West region will see a mixed profile over the next seven days, some areas above normal moisture, and some areas below. The second week forecast is normal/below normal. The South will see below normal rains over the next two weeks. Weather right now, during the reproductive stage, is the prime yield determinant.
Argentina is set for normal/below normal. They've been just fine for weeks so we can't say this will cause significant damage.
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Corn
Quiet trade was noted. After consistently strong US weekly export sales today's report was lightly disappointing.
Brazil's domestic old crop corn supply remains a concern. There is no significant change to the US pricing advantage of $8 to $10 per tonne excluding shipping.
Weekly export sales today cover Fri 1/12 – Thu 1/18 activity. Sales of 954,796 tonnes were reported for corn. The trade estimate was 725,000 – 1,400,000. USDA’s current 2.100 billion bushel goal for the year would be -2% from the five year average pace. Our year to date sales are -3% from average. To meet USDA’s goal remaining sales need to run -1% vs. the five year average. 12 of the past 17 weeks have been over that goal. Today's sale was lightly disappointing at -16% vs. average. US export prices have an advantage over BZL. If sales run +10% through August we'll be 86 million bushels over USDA. If sales run -10% then we'll miss by -69. Allendale is +50 million bushels vs. USDA's whole-year goal.
Argentina's Buenos Aires Grains Exchange raised their view of the coming corn crop from 55 million tonnes to now 56.5. They were at USDA and are now over. USDA on January 12 left their prior 55.0 view unchanged from the prior month. This is not really a surprise to most in the trade. As you know here in the US, “normal” rains seem to now imply lightly above trend yields in recent years. It also fits into normal El Nino years.
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.
We've been a bit caution on making strong claims about US corn for ethanol rates. There was a five week stretch which oddly strong production rates, +4% to +24% from last year. Ethanol production does not do that. Wednesday's weekly ethanol production report covered activity Saturday the 13th – Friday the 19th. The report showed last week at only 818,000 barrels per day. That was -19% from last year in the same week. So oddly strong production rates then one big negative. You could say cold temps were an issue. That is kind of true as the Midwest cold snap was Friday the 13th – Sunday the 21th. But if that was true why was the prior week, which had snow storms in the Northern Plains, at +4%? That would seem like a much more valid issue. So here's where we are at. USDA’s 5.375 billion bushel goal is +3.8% from last year. YTD runs through 1/19 are +4.6%. To meet USDA’s goal the remainder of the year only needs +1.0%. We're doing just fine. Until this situation clarifies we are currently at USDA’s number. As a small heads up we do not have any surge in general gasoline usage. Sep 1 to current is +0.8%.
On Tuesday we released the January installment of the AgLeaders Conference Series. You can still access our outlooks and even Drew's weather presentation still at https://www.allendalehub.com/winter-conference. The starting point for the new crop corn outlook obviously starts with the old crop picture. Heavy carry-in supplies from old crop as of August 31, 2.111 billion bushels (USDA 2.162), are a sharp jump from the prior year's 1.360 starting point. The main story for corn is very clear. Do we have reason to bring these stocks down and avoid even lower prices in the year ahead? New crop budgets are not looking positive. University of Illinois currently sees cash corn breakeven costs for new crop at $5.11. Their current budget suggests a loss of $154 per corn planted acre this year. That would be the worst loss of our 15 year database of Central Illinois crop farming history. They estimate the current old crop marketing year will see a loss of $144 per acre. Two serious hits are lined up. With that in mind our model scenario sees planted acreage -4.4 million from last year at 90.241. There are others calling for less of a drop but we don't see those as realistic at all. With a general average of 91.26% harvested we see that category -4.2 million from last year at 82.354.
Yields are of course a hotly debated issue. USDA's starting view of trend yield in 2023 was 181.5 bpa with a final actual number -4% at 177.3. That makes it five years in a row of below-trend yields. We do understand many people would want to suggest that means we'll also miss it this year. We missed it those years because there were moderate weather hindrances in those five years. Also remember, the prior 2014 - 2018 year period saw five straight instances of above trend yield. And further supporting the yield discussion remember that much of the ag community was discussion 2023 was a repeat of the 2012 drought. If you know exactly what weather will be in July, the first three weeks of August and the exact planting date this year you'll get the yield story right. We have no problem in starting the 2024 trend yield, what you get with average temperatures and average precipitation, at 181 bpa. Our 14.978 billion bushel production estimate would be the fourth best. When including beginning stocks and imports our 17.114 billion total supply estimate would be a new all-time record. It would also be 387 million over the 2023/24 total supply. So that's where we are at. Even with a much smaller starting acreage than many we still have a supply problem.
We see a 239 million bushel jump in total demand for 2024/25 to 14.765 billion. That pushes the implied ending stock at 2.350 billion. That would be the largest since 1987/88. As a clear reminder, it is stocks divided by usage that drives price, not just plain stocks. We show a stock number in our price modeling to you for simplicity. The 15.9% stocks/use would be over the 2023/24 level of 14.8% and the largest since 2005/06. As a disclaimer, the 2017/18 marketing year which ended at 14.5%, saw USDA monthly reports at/above those levels from July 2017 - February 2018. December 2017 corn futures, and the correct old crop ones after, traded $3.49 - $3.98 ¾ on those eight USDA reports. As we have stated very clearly for several years any ending stock number over 1.8 billion is trouble.
Though Allendale does look for clearly lower prices later in the year we are suggesting current prices are about where they need to be for now with no further declines in the short term. A spring planting rally would push July to $5.60 and December to $5.42. Final expiration prices would be $4.28 for July and $4.05 for December. These are based off of our popular pricing model using similar years. In plain speak I, as the person who has made Allendale's price projections for over 20 years, would call these optimistic. Our outlooks do give chances for higher prices later this year. But on these rallies it should be treated as selling opportunities rather than a time to get bullish.
March Corn Chart: The long term downtrend remains. A new low was made on Thursday. The downtrend remains in place until resistance at 464 1/4 is broken. But let's point out that “new low” on Thursday was a spike low that closed near the day's high. Officially, we have a small rebound in a clearly established bear market. We cannot yet say the chart has changed. If so, there is an upside intraday gap at the 12/29 close of 471 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 172 7/8 cents from three rounds of hedges on 75% of the crop (129 2/3 cents when brought to 100% of the crop). As of 1/25/24 No hedges in place and holding all cash. 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). Third hedge on 11/23/23 on 75% using purchased CH 460 puts at 10 1/4/sold 520 CH calls 6 ¼ for net 4 cents, exited 1/25/24 at 13 cents for net of +9.
Corn Summary: The long term story for corn remains plain bearish. We should have a two steps down-one step up lower trade in general for the year. But the question is whether we are at the time for one of those temporary step ups. Our similar year study suggests it is about time. This page of Allendale's products has now exited the third round of hedges and is holding all cash...Rich Nelson
Working Trade:
(11/30) Sold March 480 call 15, risk 19, objective 0. Closed 1 1/8.
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Soybeans
Weekly export sales were quite poor today. Additionally, Brazil's price advantage has widened. So far bulls don't have a clean story to justify a trend change.
Brazil's export advantage not only remains, it has widened. They are now $52 - $66 per metric tonne cheaper than the US, $1.40 - $1.80 per bushel.
Sales of 560,869 tonnes were reported for soybeans. The trade estimate was 700,000 – 1,400,000. USDA’s 1.755 billion bushel soybean export estimate is -11% from the five year average sale. Year to date sales are currently -9% from average. To meet USDA’s goal the remaining weeks through August need to run -15% from average. 12 of the past 15 weeks met that goal. There are two issues which weaken the strong sale argument. This week's sale was -47% from the five year average. Additionally, Brazil's pricing advantage is now $58 per metric tonne. Shipments remain a concern. To hit USDA's goal they need to run +10% from average through August. The past four weeks are -24%. Allendale has lowered our export view from +10 million bushels vs. USDA to now even.
Argentina's Buenos Aires Grains Exchange raised their view of the coming soybean crop from 52 million tonnes to now 52.5. They were over USDA and have now added to that. USDA on January 12 upped their view from 48.0 to 50.0. This is not really a surprise to most in the trade. As you know here in the US, “normal” rains seem to now imply lightly above trend yields in recent years. It also fits into normal El Nino years.
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.
Allendale sees the 2024 soybean story as a little different than corn. Our carry-in stocks of 250 million bushels, USDA is at 280, is not burdensome. They are larger than we expected to see at this point but not overly burdensome. The new crop discussion does show light concern with a potential $52 per acre loss on the U of IL budgets. That assumes breakeven cash soybeans at $12.22 per bushel. Their loss from the current crop is seen at $13 per acre. Our model scenario sees planted acreage +3.1 million from last year at 86.700. There are others calling for less of an increase but we don't see those as realistic at all. With a general average of 98.72% harvested we see that category +3.2 million from last year at 85.590.
On the yield end we are now looking at 50.6 bpa for the 2023 harvest. That was -4% from USDA's starting view of 52.0 trend. We do have to point out that soybean yields ended over USDA's view of trend in 7 of the past 10 years. Additionally, compared with many expectations this past June a -4% hit from trend is nothing. Our starting trend yield is 51.4 for the 2024 crop. Our 4.402 billion bushel production estimate would be the fourth best. When including beginning stocks and imports our 4.671 billion total supply estimate would be the fifth largest. It would also be 212 million over the 2023/24 total supply.
We see a 146 million bushel jump in total demand for 2024/25 to 4.355 billion. That pushes the implied ending stock to 316 million. That would be the largest in four years. Stocks/use, the determinant of price, would be 7.3%. That is also the largest in four years. On the price end our forecast suggests July futures would find value at $11.91 and November at $11.46 in the coming weeks then rally to $13.40 an $13.17 for spring highs. That would then be the high and a push to lows on the July to $11.42 and November at $10.74. These may seem like large price swings but keep in mind that implied $2.37 per bushel trading range for November this year is not at all out of bounds for soybean swings. On a personal note I am wondering if current price action itself is finding an early winter low.
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.
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 trend is down and we have a long ways to go to test chart resistance. 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 1269 1/4. 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. We're still looking for any clean support to start a discussion on that upside chart gap.
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: Officially, today's close is the fourth lowest of this downtrend. The raised Argentine crop estimate is not a surprise but is tough to see psychologically. We still suggest this market is undervalued from a balance sheet perspective. The market has disagreed with our view for three weeks. For producers we are holding cash beans unhedged...Rich Nelson
Working Trade:
(1/25) Sold May 1200 put 28, risk 42, objective 0. Closed 29 5/8.
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Wheat
Gains were noted again for the wheat complex. Middle East tensions remain. There is a good moisture forecast for the US ahead.
USDA reported 451,368 tonnes for last week’s wheat export sales. The trade estimate was 200,000 – 625,000. USDA’s 725 million bushel export goal, for the year that started June 1, is -19% from the five year average sale. Year to date sales are -13% from average. To hit USDA's goal we only need to sell -47% vs. average through May. Wheat sales have been quite erratic but over 26 weeks have averaged +3% vs. average. This week was -19%. It is too early to really show a serious discussion on shipments. The US wheat shipment season is not as seasonal as soybeans. We will point out remaining shipments through May need to run +10% vs. average to meet USDA's goal. Over the past four weeks they have run -24%. Allendale is +20 million bushels vs. USDA.
Argentina's Buenos Aires Grains Exchange left their view of the completed Q4 wheat harvest unchanged at 15.1 million tonnes. USDA on January 12 left their prior 15.0 view unchanged.
SovEcon lowered its view of the Russian summer 2024 wheat harvest down from 92.8 million tonnes to 92.2. Allendale is at 92.0. USDA will release their view in May. Don't forget, SovEcon also lightly lowered their January export view. We'll have three months in a row of lower than last year exports finally.
For wheat we are nearing the end of the May 31 old crop marketing year. A start to the winter wheat acreage argument has already been made. Though USDA will adjust their January 12 survey of +2.2 million acres ahead in March, then June and lastly in September the general story won't change. Our old crop stock view is 639 million bushels (USDA 659). We see total acreage -1.7 with other spring +0.4 and durum +0.1. A 1.840 billion production would be the largest in four years. A 2.624 billion total supply would be the largest in three years. This would be +85 million from 2023/24.
We see a 50 million bushel jump in total demand for 2024/25 to 1.950 billion. That pushes the implied ending stock to 674 million and stocks/use to 34.6%. On the price end our forecast suggests July Chicago futures with a spring high to $6.74 and an eventual low of $5.54.
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.
Wheat Summary: Russia's wheat exports in January are not expected to fall below last year levels. That marks three months in a row. Our price outlook suggests a little higher pricing but not a runaway bull market...Rich Nelson
Trade Recommendation:
(1/12) Stand aside.