China buys US wheat again. Short term soybean downtrend remains.
Grains
Drew Lerner on Friday released longer term weather outlooks for South American. No major changes from the current pattern are expected over the next three months. Brazil's Center/West region will remain with above normal temperatures and below normal precipitation. Their South will remain with below normal temperatures and above normal precipitation. Allendale has very lightly reduced concern with Brazil this week. Mato Grosso do Sul, about 10% of production, has moved from below normal precipitation previously to now normal. Planting is wrapping up for the small 1st crop of corn. Yield determination, specifically focused on weather at reproduction, will start in January. The large 2nd crop plants in January and sees yield determination in April. Soybeans are wrapping up with planting and will see the bulk of yield determination in January. There is only a light, valid, production hit that can be factored in for 1st crop corn and soybeans. January is a much more important month for both. The market may wait until perhaps the second week of December before showing more concern.
Argentina is off Allendale's list of concern. We have their corn and soybean crops at trend yields. Drew's latest update keeps that story in place. Normal to above normal temperatures and mostly normal precipitation are seen over the next three months. We will note the one week out forecast is dry for Cordoba and parts of Santa Fe. We cannot yet suggest above trend yields. El Nino years, remember this is the sixth strongest since 1950, generally bring above normal rains and above trend yields.
Allendale has been more active with the Ag Leaders conference series this year. In addition to our big January and July conferences we have included updates every two or three months. Our next minor update comes on Thursday. One area which has changed since our last update is with the trade's perception of interest rates. Speculative traders now give a 59% chance that the Federal Reserve will start lowering short term rates at the March meeting. A Reuters poll of economists found that 52 of 102 surveyed suggest it won't be until July. Either way, lower rates is the discussion for 2024. In this week's AgLeaders update we'll cover how this impacts commodities and specifically grains. Make sure you don't miss it.
Corn
Corn attempted a fifth day of higher trade but it was not able to hold into the close. There are short term stories allowing for some stability but so far no change that can offset the long term US supply problem.
The Brazilian export association, Anec, released its first view of December corn exports. A 6.86 million tonne estimate would be +0.4 mt over last year. April – December exports would run 7.2 mt over last year's record.
Tomorrow's weekly export sales report is expected to show 725,000 - 1,500,000 tonnes for corn sales. This covers Fri 11/24 - Thu 11/30 activity. This would run -23% to +59% vs. the five year average. The prior nine weeks were extraordinary at +44% vs. average. To meet USDA's whole-year goal remaining export sales only need to run -2% from average.
For Brazilian total corn crop estimates USDA is at 129 and Conab is 119.066. The private trade is generally from 123.5 to 128.7. There is one oddball in the group, Thursday's Patria Agronegocios at 112.51. We do not consider that realistic.
Soybeans have better reasons to rally on Brazil weather. The big reproductive phase for 100% of their soybean crop, January, is directly ahead. With this large US balance sheet you have to prove a significant amounts of Brazilian damage to support a rally. Let's start backwards here. The extreme bulk of US corn price determination comes from the US balance sheet, not the world. 1.5 billion in stocks = 540 futures, 1.6 = 485, 1.7 = 440, 1.8 = 410. If you want to argue for 500 corn futures you need a final ending stock of 1.575 billion or so. We need a 581 million bushel drop in ending stocks from USDA's 2.156. That would require a huge hit to Brazil.
Brazil's 1st crop is nearing the end of planting in remaining areas. It will see reproduction in later December and much of January. Assuming only 21% of total corn production a trend yield would equal 26.8 million tonnes in production. We would feel comfortable with saying a 5% cut could be reasonable, 1.3 million tonne. For corn, the clear bulk of production, 2nd crop, is still a story months away. Planting is in January and yield determination is in April. Officially, for a crop that is not even planting, you can't write off production yet. But can a theoretic 5% hit be discussed? As the huge second crop would equal 99.9 mt at trend yields, this is a 5.0 mt impact. Officially, Allendale is only at -1.3 mt for “actual/known” losses to date. That could widen up to around 10. 1 million tonne equals 39.4 million bushels of corn. Getting a little wild with numbers, trying to make a super bullish case, even if you assume something like 50% of production losses show as US corn purchases our “actual/known” losses of 1.3 mt are about 26 million bushels. A 10 mt production hit, assuming 50% becomes US exports, boosts that to 197. So far, there is no story of a needed 581 million bushel drop in US ending stocks.
Friday afternoon's USDA report on October corn for ethanol usage was okay. At 461 million bushels it was +2.9% year/year. September, with no seasonal downtime maintenance, was +12.2%. Year to date run is so far +7.2%. Though we are ahead of USDA's whole-year goal of +2.9% this is not as positive as it sounds. To hit USDA's goal the remainder of the year needs to average +2.1% vs. last year. The past seven weeks have averaged only +0.6%. We are likely missing USDA's corn for ethanol goal by 25 - 100 million bushels. Allendale is at -25 and will likely move it to -50 in the coming months.
Deliveries against the December corn contract on Tuesday were only 48.
Friday's monthly USDA supply/demand report will hold no adjustments to US corn production. The trade expects only a minimal change for US corn ending stocks, from 2.156 billion last month to 2.152. Allendale is the low of the group at 2.106 but we do not consider our number, even if hit, to be bullish at all. For Brazil production the trade is at 127.0, down from 129.0 USDA last month (ALDL 128.0). Argentina is seen at 54.8 mt, down minimally from 55.0 last month (ALDL 55.0).
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.
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 a bear move for another week then higher prices into spring.
March Corn Chart: The long term downtrend remains. Today's 493 ¾ high was not enough to suggest a breakout from prior recent highs of 493 ¼ - 496 ½.
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. 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 17 3/4.
Soybeans
The January contract exceeded yesterday's lows by ¼ cent in today's session. The day's close was the lowest of this three week downtrend just yet. There is still lingering pressure from the fire at a smaller US crush plant. ADM has not announced a restart date. Brazil's weather forecast suggests light damage but not a panic situation yet. The trade does not expect a lower stock number on Friday's monthly report.
USDA reported an overnight export sale of 136,000 tonnes of soybeans to China. This is their first buy of the week.
Anec’s 3.58 mt estimate for December Brazil soybean exports would be +1.6 mt over last year. April – December exports would run 25.1 mt over last year.
Tomorrow's weekly export sales report is expected to show 1,000,000 - 1,800,000 tonnes for soybean sales. This is reasonable given overnight export sales during this period were 587,300. This would run +39% to +150% vs. the five year average of 720,299 for this specific week. To meet USDA's goal remaining sales only need to run -11% from average. Much of the trade is resistant to raising their whole-year sale goal with concerns over the river and US/Brazil pricing.
ADM still has yet to release an estimated restart date for the soybean processing plant in Kershaw, South Carolina. This small plant is currently closed after a fire on Sunday. We estimate it runs about 50,000 bushels per day for optimal capacity.
The private trade estimates Brazil's soybean crop at 155 - 164.7. USDA is at 163 and Conab is at 162.42. There is one group which we suggest is unrealistic, at 150.67. There are no big panic declines yet.
For Friday's report we expect USDA to drop their 163 mt Brazilian view to 161. We do not call that bullish. On our private books Allendale can see a 156.5 million tonne estimate for Brazil theoretically. That would come from -2% on acreage and -2% from a late planting impact. Officially, most ethically run weather models are literally on hold right now and ignoring conditions in the vegetative health stage. US farmers, our own growing season this year is the perfect example on why we need to tread lightly with production cuts.
Allendale is supportive to soybeans from a Brazil story perspective. Even though we're not really hitting the Brazil crop too much yet, we have to say it does not take much to change the US balance sheet. Bears are correct in saying 1) you don't need to fix Center/West moisture deficits to get near trend yields and 2) you literally only need normal rains specifically in the reproductive phase. It is crazy how this weather modeling has removed a lot of previous perceptions on yields. But here's our take. Even a 5% hit for Brazil, -8.2 million tonnes, could be justified to add a little to US exports. A 25% Brazil production loss to US export gain assumption, 2.05 mt, would equal 75 million bushels for the US. USDA's ending stock number this month was 245. Let's be even more conservative than discussed in prior weeks. Let's say the US gets only 10% of that small production loss in new exports, 32 million bushels.
We call Friday afternoon's monthly USDA domestic soybean crush report as lightly negative. For October USDA reported 201.4 million bushels of soybean use, 2.4% year/year. September was +4.3%. Year to date run is +3.3%. We are behind USDA's whole-year goal of +4.0%. To hit USDA's goal the remainder of the year needs to run +4.1%.
This Friday USDA will release the monthly supply/demand report. It will hold no adjustments to US production. The trade expects a minimal change to last month's US ending stock estimate of 245, only to 243. Allendale is at 227. We have +10 vs. USDA for crush and +10 for exports. For Brazil the trade's production estimate is 160.2 million tonnes, down lightly from 163.0 last month (ALDL 161). For Argentina the trade estimate is 48.2, down minimally up from USDA's 48.0 last month (ALDL 48.0). For a trade that is eager to see lowered US stocks and Brazilian production this would be disappointing.
Late next Monday night, our December 11, the Malaysian Palm Oil Board will release November's palm oil statistics. Production is expected at 1.809 million tonnes. That would represent a drop of -6.6% from the prior month. Exports are seen 1.526. End of November stocks are expected 2.437. This would stop six months of increases.
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.
Let's go over Allendale's 1400 futures argument. USDA has ending stocks at 245 million bushels. They are too low on domestic crush. They don't have to change it yet, especially after Friday's report, but will need to in a few months. Our soybean pricing matrix has done a great job in giving us realistic stock change/price implications. Our model is not based on ending stocks. It is US stocks/use, a little energy price influence and a little world balance sheet influence. We equate things down to ending stocks for simplified discussions with clients. 150 million in US stocks = 1510 futures, 200 = 1400, 220 =1360 and 250 = 1295. The soybean price response to the same 50 million bushel change in stocks is not the same at various supply levels. You flirt with 200, and especially sub-200 stocks, and things get serious. For now, with only a minimal -5% Brazil production hit and a minimal 10% to 25% production hit-US export increase expectation, we're conservatively at 200 stocks and a 1400 futures price. For the “when” for that price you can't expect it until the first two week of December at the earliest.
January is currently the lead contract for soybeans based on volume and open interest. Perhaps late next week March may take over.
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.
January Soybean Chart: The uptrend has been broken. At best you could say soybeans are in a general sideways range. The recent three weeks have been in a downtrend. Today's trade saw a new low and new lowest close for this recent downtrend. Since we have broken near term support, 10/25 lows, there is one last support point on the chart. Harvest lows from 10/11 at 1270 ¼, are now the last point. How the market is trading, chart based technicals, are worse than the fundamental story. That has to be respected in the short term. Bulls would like to discuss a move to at least the intraday gap left from the 11/22 close of 1356 ½. So far, this market cannot do it. After that we have resistance points from the 11/15 high of 1398 ½ then the high from 8/28 at 1420. Also, let's point out there is an an open upside intraday gap to the 8/28 close of 1416 ½.
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 market here at 1295 is pricing in a 250 million bushel US ending stock. That fits in with the trade expectation for Friday's report, 243. Given the crush plant fire the trade is more convinced that any bullish reports will be held from this month. While still feel comfortable with saying soybean futures will likely see 1400 based on an eventual stock near 200, we will fully point out the market is not acting like it. 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 33 7/8.
Wheat
A third China buy helped spike US wheat futures. The market was unable to hold this higher trade into the close. In this week's AgLeaders update Allendale will start a conversation of a changing price narrative for US wheat futures. This has been a relentless 18 month downtrend. A change in interest rates in 2024, perhaps a changing Russian export narrative and now Chinese buying are newer developments.
A third China buy of the week was reported by USDA. Today's 372,000 tonnes of US soft red winter now puts the week's total to 1,009,873 tonnes. This doubles their purchases of the year to 2,019,873 tonnes. This would be the third largest yearly buying pace of the last 15 years. Over the past three years China's imports have increased to 10 - 12 mt annually.
Egypt announced a relatively weak purchase of 180,000 tonnes of wheat in its latest tender. 60,000 was supplied from Ukraine using payment on sight. 120,000 tonnes was purchased from Russian supply using a 270 day letter of credit. Pricing was $249.90 and $255 before shipping costs.
Deliveries Tuesday were slow with 161 contracts for Chicago, zero for KC and 2 for Minneapolis.
The Russian wheat crop looks great. That was the call from the head of science at Russia's state weather forecaster, Hydrometcentre. In an online presentation he estimated only 4% of the crop was poor as it heads into winter dormancy.
Tomorrow's weekly export sales report is expected to show 250,000 - 800,000 tonnes for wheat sales. As a reminder this will not include this week's strong China buys. This wide range of expectations would run -46% to +74% from the five year average. To meet USDA's whole-year goal remaining sales only need to run -29% from average. The trade expectation for Friday's WASDE report would appear to show no export sales increase. Given this week's sales there will be one in future months.
Friday's monthly USDA supply/demand report will hold no adjustments to US production. The next revision will be on the January 12 Annual Production Summary. For Friday's report the trade estimate is for no change in stocks from last month's 684 million bushels (ALDL 684).
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: Perhaps by the end of this year Allendale may change our “don't buy wheat” discussion. The Russian export overage has been one of the world wheat market's problems. While we are not eager to trade wheat from a simple buy or sell flat price we are interested in the Chicago/KC spread. If there is some type of light moisture recharge this spring that spring could improve to -30...Rich Nelson
Trade Recommendation:
(11/17) Stand aside.