Brazil's weather forecast offsets positive export sales.

Grains

There will be no Sunday night grain trade, Monday day session nor Monday night trade. After Friday's close the next session for grain or livestock is Tuesday at 8:30 am Central. Have a safe and happy New Year celebration.

Brazil's weather issues are not fixed but this forecast change right as reproduction starts could do a lot. Eight week rainfall totals for the three states in the Center/West region, Mato Grosso-Goais-Mato Grosso do Sul, have run -57%/-54%/-37% from normal. The one week forecast ahead now has all three states set for normal to above normal rains. The two week forecast continues that for two of the three states. The two Southern states of interest are set for below normal rains. Let's not put our heads in the sands on this. Remember, we've argued for a statistical method for yield estimation. If that is the case then we pay attention only to weather at reproduction, then weather after reproduction and to a much smaller extent planting date. Weather in the vegetative growth stage is almost ignored. This method helped us keep our hat on during the 2023 US summer. As it stands at this very moment you can only take a minor percentage off for damage so far.

Argentina has been set for trend yields with generally normal rains recently. The general two week forecast is mostly normal rains with some areas seeing above normal. We're still quite cognizant of the fact a normal El Nino pattern is for above normal rains and above normal yields.

Corn

Corn ended the day lightly lower. Positive weekly export sales and ethanol production numbers were offset with a positive weather forecast for Brazil. Without significant damage to their crop, which for corn would be months away, the focus returns back to US supplies. Today's close was only 2 ¾ cent from the recent downtrend lows.

Weekly export sales today cover Fri 12/15 – Thu 12/21 activity. Sales of 1,242,116 tonnes were reported. The trade estimate was 600,000 – 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 can run -1% vs. the five year average. For 12 weeks sales have shown a great pace at +31% vs. the five year average. This week's +35% sale now makes it 13 weeks of strong numbers. US export prices have an advantage over BZL. If sales run +10% through August we'll be 100 million bushels over USDA. A 20% pace would increase to 190 over. Allendale is +50 million bushels vs. USDA's whole-year goal.

The EIA's weekly ethanol numbers on Thursday were a bit of a surprise. Last week's production run was 1.107 million barrels per day. This was the best run in over two years, October 29, 2021! This is a bit of a surprise as typically we are past the seasonal production peak. This strong production week was +15.0% vs. last year. The prior week was also strong at +4.1%. These two weeks help ease some of the concern from the prior nine weeks. Our year to date pace is strong at +4.7%. USDA's whole-year goal is +2.9%. This means the remainder of the year needs to run +2.1%. We still hold our general concern regarding corn for ethanol. Only two of the past 11 weeks have met this general +2.1% needed goal. Additionally, general gasoline demand remains quiet. Year to date demand is +0.1%. Last week's demand, the week before Christmas, was -1.7%.

Though there is concern over this coming 2nd crop corn planting in Brazil it is not yet time to officially hit production numbers. USDA this month left their total corn production view unchanged from last at 129.0 million tonnes. Conab, which already started out with a lower estimate than USDA, lowered theirs from 119.066 to 118.528.

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 oversupplied US 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 were made last week for this downtrend. There is a sharp downtrend line from October and December highs that crosses at 479. We would hesitate to say that a violation of that line means a transition to an uptrend. Today's close was 2 ¾ cents from recent lows.

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: Corn remained weak. We do expect light corn production losses out of Brazil but that would mainly be light acreage shifts. It is still months before you can say significant yield issues. Our general discussion of 430 futures for a target remains...Rich Nelson

Working Trade:

(11/30) Sold March 480 call 15, risk to 21, objective 0. Closed 8 1/2.

Soybeans

Brazil's weather forecast, now normal to above normal, pushed soybeans to new lows for this five week downtrend. Additionally, Chinese buyers have shown minimal interest recently.

This four day week ended with zero overnight sales to China. Last week was also low at 132,000 tonnes total. In the first 15 days of December there were 11 reported overnight soybean export sales. There is a clear change in China/Unknown interest.

Brazil's soybean export bid, not including their shipping cost advantage, is $33.50 per metric tonne cheaper than the US for 30 day delivery. Their advantage increases to $47.80 for delivery three months from now. On a per bushel basis, this ranges from $0.91 to $1.30.

Sales of 983,894 tonnes were reported for soybeans. The trade estimate was 800,000 – 1,700,000. Overnight export sales for this week were quite low at 132,000. USDA’s 1.755 billion bushel soybean export estimate is -11% from the five year average sale. Year to date sales are currently -7% from average. To meet USDA’s goal the remaining weeks through August need to run -19% from average. This week's sale was +3% from the five year average. Allendale is +10 million bushels over USDA's whole-year view. Brazil’s clear price advantage remains. There are concerns over recent declines in shipments.

Aside from the 151 million tonne estimate from Refinitiv, Reuters newswire's research group, most others are still keeping Brazil production losses limited. Four other private groups last week suggested 153 - 160. Conab and USDA, recently lightly lowered, are currently 160.177 and 161 respectively. Allendale suggests up to a 4% decline from lightly lower acreage and a light yield drag from later plantings, 156.5. You cannot take another step lower in production until we get into January.

Argentina devalued the peso against the US dollar by more than 50%. Their government said they would try to raise export tariffs from 31% to 33% for soymeal and soyoil exports. So far, the government 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 consistent change from normal precipitation to normal El Nino above-normal.

USDA has ending stocks at 245. We can prove their domestic crush estimate is low by 10 - 20 million bushels. We cannot really jump export sales much at all though. 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: The general trend over six months is sideways. But the recent action over five weeks is down. This week continued the bear trade. Thursday saw an upside test of the general downtrend line. It failed. Today saw new lows and lowest close for this downtrend. The market is rejecting higher trade and finding acceptance at lower trade. Resistance is now the downtrend line at 1319 ¼. There is only the major low from 10/11, 1282 ½, left as support. Bulls need to see a successful break of this downtrend line before discussing neutral or higher prices. There is still an intraday gap left open at higher prices, 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: Though we may not like it the soybean market is correct in this price break. Concerns over Brazil have very lightly eased over the past month. Argentina's situation has improved. Recent Chinese buying interest has lowered. We can agree this market should be supported over 1295. But the argument needed for a rally is not quite there yet. There are still a lot of ups and downs ahead as we near the very important weather window for Brazil. If the forecast turns back to normal precipitation and stays there then you can validly remove all risk premium. For producers we are holding cash beans unhedged...Rich Nelson

Trade Recommendation:

(12/22) Stand aside.

Wheat

This week's ups and downs ended wheat with a light gain. We're not sure how much longer a Black Sea story will last in the marketplace but it is okay for now. The US weather forecast is beneficial for hard red but detrimental for soft red wheat production.

USDA reported 276,406 tonnes for last week’s wheat export sales. The trade estimate was 200,000 – 600,000. 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 -14% from average. To hit USDA's goal we only need to sell -36% vs. average through May. Wheat sales have been quite erratic but over 21 weeks have averaged +7% vs. average. This week was -34% vs. average. Allendale is +20 million bushels vs. USDA.

Egypt's state grain buyer was said to have ended its recent tender to buy milling wheat for March delivery with no purchases. Offered prices were said to be too high. It is a little negative psychologically but let's also point out they've been active this month. There was a 480,000 tonne purchase on 12/19, a 420,000 purchase on 12/7 and 180,000 on 12/5.

Recent moisture in the Plains, from Nebraska through Texas, was generally 0.25 - 1.00 inch water equivalent. Portions of the Eastern half saw up to 2.00 inches. The current forecast out through two weeks is normal to above normal. The general winter forecast, transitioning to above normal moisture, appears to be working. This would benefit perceptions of the hard red winter crop, KC wheat futures. However, the general forecast for the coming two weeks is below normal moisture for the Eastern Cornbelt, soft red winter wheat areas.

Last week 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. Separate from China's purchases 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. Though we are not exactly wheat bulls we can say we are no longer bears...Rich Nelson

Trade Recommendation:

(12/21) Stand aside.