Beneficial Brazil weather forecast holds. Corn sees new lows. Soybeans break major chart support.

Grains

For now more than a week Brazil's weather forecast has held the view of a changed outlook. In the Center/West Mato Grosso will see normal to lightly above normal rains over the next two weeks. Goais sees mostly above normal in week one then normal-below normal for week two. Mato Grosso do Sul, which is not as dry as the first two, will see mostly below-normal. In the South they'll see mostly normal to below-normal. Brazil is not exactly fixed. And this forecast would not suggest a return to trend yields. But a forecast change exactly at the same time as the reproductive phase begins, is a big deal. Don't forget the US 2023 summer as we transitioned from June to July and the price decline.

The next two weeks are forecast for mostly normal rains in Argentina. Some areas will see lightly above normal while others will see below normal. 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

A push to new lows and a new lowest close was noted for this long term downtrend in place since July. It is a bit early to discuss big Brazil corn production declines. The current beneficial weather forecast does not help. Positive US exports are not enough to change the US supply story.

After the close USDA reported November corn for ethanol usage. At 455 million bushels it would be +1.0% from one year ago. Due to an oddly strong September the first quarter will wrap up with 1.345 billion bushels of usage, +4.9%. That means the remaining year, to meet USDA's +2.9% goal of 5.325, will have to run +2.2%. We have light concerns about USDA's hope given that only 3 of 11 recent weeks have met that pace.

StoneX lowered the prior Brazil 1st crop view from 26.45 million tonnes to 25.81. They lowered their prior 97.33 2nd crop view to 96.56. This -1.4 mt cut is not that much. They do not release an official total crop estimate. Though there is concern over this coming 2nd crop corn planting in Brazil it is not yet time to officially hit production numbers. USDA last month left their view unchanged at 129.0 million tonnes. Conab, which already started out with a lower estimate than USDA, lowered theirs from 119.066 to 118.528 in December.

In December Argentina devalued the peso against the US dollar by more than 50%. So far this is no confirmation of the government's plan to raise the current 12% corn export tariff to 15%. The peso devaluation more than offsets the light coming increase in the export tariff.

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 has ending stocks at 2.131 billion. Export increases are likely still ahead. However, corn for ethanol needs to be lowered. 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. A new low and lowest close made today for this long term downtrend. There is no breakout yet from recent highs which are minor resistance at 493 ¼ - 496 ½. There is a small intraday upside gap to 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 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: Different than soybeans, you cannot really make moderate or big cuts to Brazil's corn crop. The big 2nd crop hasn't even started planting in any real way. Yields on that won't be determined until spring weather is seen. That leaves us noting any further declines in the US ending stock situation, which we do expect, may not be enough to change the genearl story. 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 6 1/8.

Soybeans

Soybeans showed a lot of bear market confidence with a gap lower start and strong selling through the session. March made new lows for the prior five week downtrend. It is also now under all prior July - December pricing with a push through the October lows of 1282 ½. Though StoneX posted a new low for the private trade's belief on Brazilian soybeans, the trade is removing all risk due to the current weather forecast. Additional concern is the lack of recent overnight export sales.

From 12/1 - 12/15 there were 11 separate reported overnight sales. In the 12/16 - 12/29 period there was only one. There were no sales reported this morning.

After the close USDA reported November soybean crush for the whole US. This report is often overlooked by the market as NOPA already released their November numbers. USDA reported the third month of the new marketing year at 200.1 million bushels, slightly over the 199.7 trade estimate. This number was +5.5% from last year. The prior November NOPA number, which covers 95% of US production, was also +5.5%. With 576 million bushels crushed in the first quarter we are +4.0% from last year. USDA's Sep - Aug whole-year goal, 2.300 billion, would be +4.0%. Given that we'll have more plants online in the coming months we remain +10 million bushels vs. USDA.

StoneX lowered their 12/1 view of the Brazilian soybean crop, 161.9 million tonnes, sharply today to 152.8. They are now the lowest estimate of the trade group. The prior five private estimates were 153.0 - 161.9. Conab and USDA have only lightly lowered their views, 160.177 and 161.0 respectively. Allendale is only -4% from starting production at 156.5 mt through December. We can now make further, light, declines in production now that we are in a month where weather really matters.

In December Argentina devalued the peso against the US dollar by more than 50%. This week their government said they would try to raise export tariffs from 31% to 33% for soymeal and soyoil exports. So far, the goverment says no change to soybeans which are currently at 33%.

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.

USDA has ending stocks at 245. We can now prove their domestic crush estimate is low by 10 - 20 million bushels. We cannot really jump export sales much at all. 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.

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: Today's trade broke below the prior six months of sideways trade and pushed to new lows and a new lowest close. The prior 10/11 low of 1282 ½ is now broken. We will note the first of two downside gaps at lower prices was filled today, the 6/29 close of 1270 on the intraday chart. The second is a daily chart gap 1212 ½ - 12/12 ¾. Until we find support and post a day that rejects lower trade, this is the chart discussion. Bulls, which are not in control, now have two upside gaps to note. Today left a daily chart gap 1290 ¾ - 1296 ¾. If we can then break the general downtrend line at 1316 then a discussion about the second gap can start, 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: The soybean market is now trading the Brazil weather story exactly like the US June to July weather transition. All risk for Brazil's crop has now been removed. We can see what the market is doing but would suggest it is a bit early for that view. We have said the market should hold a lightly premium over 1295 but the market is now under that price. We will agree that bears are correct in the short term. If this weather forecast holds then this price is valid. For producers we are holding cash beans unhedged...Rich Nelson

Closed Trade:

(11/21) Sold March 1300 soybean put 17, risk order for 36 filled off ½ open at 40 for -$1,150.

Wheat

All three wheat markets remain over major lows in November. We have a hard time suggesting it is time to rally from major lows.

Moderately lower trade was noted. The market has realized big world buyers have been stepping up in the past two weeks. However, concerns over the Argentine and Australian harvests, and the US winter weather, have eased. Interest in the planting issues for France have yet to take hold.

Normal to above normal moisture is seen for the US Plains over the next two weeks. The next precipitation run, late this week, will brin 0.25 - 1.00 inch of water equivalent to all of the hard red areas. It will be Eastern focused where heavier amounts will run 1.50.

In December Argentina devalued the peso against the US dollar by more than 50%. The government wants to raise the current 12% wheat export tariff to 15%.

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. 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:

(12/29) Stand aside.