No long term solution yet for Brazil’s dryness.

Grains

Last week’s 0.2 – 0.4 inch rains for the three main Center/West states in Brazil was far under the 1.5 – 1.7 normally seen for that week. After moderate rains this week they will return back to dry conditions next week. The Southern states will continue with unneeded above normal rainfall. There is a light, valid, production hit to expect from weather to this point. The trade is lightly pricing additional premium based on the potential for no improvement in weather in the months ahead when reproduction hits.

Argentina is a neutral factor but we will note portions of the main growing state of Cordoba will run normal-below normal next week. That would market two weeks in a row. If we see the forecast change to above-normal, a consistent occurrence in El Nino years, above trend yields will be the word. El Nino is not statistically tied to Brazilian corn and soybean yield changes.

Corn

Corn continues to do the best job it can in avoiding new lows. Today’s close is 6 ¼ cents away from that important mark. Brazil’s small first crop of corn will likely need a minor production cut. That could expand depending on December/January weather. Argentina has gone from a neutral factor in the prior three weeks to now a light risk-on factor. Bulls have some headwinds in the corn market. You need to cut 600 million bushels from US ending stocks to get a rebound back to 500.

USDA reported an overnight export sale of 104,000 tonnes of US corn to buyers from Mexico. This is the only overnight sale for this specific Friday – Thursday export window that will hit on next Thursday’s weekly US report. We will note the completed period through last Thursday that will hit this week’s weekly report are okay at 369,382 tonnes. That total would suggest about 1 million tonnes total for this Thursday, just over the five year average pace.

AgRural estimated Brazil’s 1st crop corn planting 80% complete on Monday. This is lightly under last year’s 82% by this point.

Soybeans have better reasons to rally. The big reproductive phase for 100% of their crop, January, is directly ahead. For corn, the clear bulk of production sees yield determination months away. Also, with this large US balance sheet you have to prove a significant amount 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 from last week. That would require a huge hit to Brazil.

In recent weeks we’ve discussed this Brazilian production issue with more depth. 1st crop, planted now and which sees reproduction in December/January, is about 21% of total corn production. Trend yields would equal 26.8 million tonnes. We would feel comfortable with saying a 5% cut could be reasonable, 1.3 million tonne. If we get into December with no forecast change you’re then able to move up to a 10% or 20% hit of 2.7 to 5.4.

But the trade is not stopping with “actual” hits to 1st crop production. There is also the expectation that 2nd crop planting will be delayed and/or reduced. 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 5.0 mt. Officially, we are only at -1.3 mt for “actual/known” losses to take. That could widen up to around 10 by early December. 1 million tonne equals 39.4 million bushels of corn. Assuming 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. We are aware much of the grain industry would like to treat this story as a major drought where 20% or 30% is written off.

El Nino and Brazilian Corn Yields: Over the past 25 years there were 3 with an ENSO reading of +0.5 during their yield determination (April). 2 of those years posted above trend yields (+6.0% and +13.0%). 1 year was below trend (-21.3%). When you look at the dataset including El Nino and ENSO-neutral years Allendale’s official stance is that there is no consistent relationship between El Nino and Brazil’s corn yields.

USDA reported US corn harvest advanced from last week’s 88% to now 95% complete. The trade estimate was 94%. There will be one more week left for harvest numbers.

The Buenos Aires Grains Exchange lowered its view of Argentina’s corn planting by 2.7% on Friday, 7.3 million hectares originally to now 7.1.

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’s Baseline Projections report suggested 2024 corn acreage -3.9 million to 91.0 million.

March Corn Chart: The long term downtrend remains. There are supportive points on the chart but we really can’t discuss them unless October’s highs are taken out. At a minimum we need to get past that shelf of recent highs 496. Bears are in control.

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. For producers we continue to hold hedges…Rich Nelson

Trade Recommendation:

(11/13) Stand aside.

Soybeans

Strong trade was noted at the start of the week for soybeans. The overnight lows of -13 ¼ cents turned into a net gain of +27 cents by the close. The trade will see this as a test of uptrend support and a strong rejection of that test. The Outside Day closing higher would suggest a higher start tonight. After moderate rains this week a return to clear dryness will be seen for Brazil next week. Though it is too early to start taking serious yield cuts off Brazil the trade is correct in noting there is not wholesale forecast change for the weeks ahead.

There were no overnight export sales announced this morning. There are zero overnight sales to report for the second day of this reporting period that started on Friday. For this Thursday’s weekly report ahead, covering sales through last Thursday, there were two sales of 424,000 tonnes. That implies about 1 million tonnes ahead. That would be under the 1.5 seen for this week over five years. So we had four “okay” weeks, one big China buying week and now this Thursday will return back to “okay or slightly below”.

AgRural estimated Brazil’s soybean planting progress 68% complete. This is under last year’s 80% and the slowest in four years. This has a light impact on both likely planted acreage totals as well as a very light reduction from trend yields.

As you know, Brazil’s soybean yields are really made with weather specifically in the month of January. Their situation in the dry Center/West is relatively close to the near-panic situation many US producers were looking at from planting through much of June. Officially, you really can’t write much off at all yet. Just like with the US, if normal rains show up in January the entire bull argument is removed. And remember, you don’t need to fix soil moisture deficits. You just need one month or two of normal rains. But bulls have two winning arguments. 1) Without playing fast and loose with the numbers, personal bias, you can already argue for some minor type of production hit. Even a 5% hit, -8.2 million tonnes, could be justified to add a little to US exports. 50% of that, 4.2 mt, equals 150 million bushels. That certainly changes the US balance sheet right? Heck, even just a 25% Brazil production loss to US export gain assumption, 2.05 mt would equal 75 million bushels. 2) But we know markets do not take their pricing cues just from “provable” damage already in place. They are also operating under the assumption that you price in “future” damage for the weeks ahead. What if a production loss does stretch up to -10%?

El Nino and Brazilian Soybean Yields: Over the past 25 years there were 8 with an ENSO reading of +0.5 during their yield determination (January). 6 of those years posted above trend yields (+0.2% to +4.8%). 2 years were below trend (-3.5% and -19.2%). Allendale’s official view though is that the data is simply too sloppy to say there is any consistent influence.

Libertarian, Javier Milei, was elected president of Argentina. The world grain trade will be interested in any changes to their exchange rate program as well as government tariffs on agriculture exports.

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 start with USDA’s soybean balance sheet and discuss the legitimacy of this rally. Remember, our price modeling work shows the extreme majority of US soybean prices are determined by the US balance sheet. Last week they raised ending stocks to 245 million based on a higher production. But oddly enough they did not raise domestic crush nor exports. It was okay for them to not raise exports at that time. But crush should be lightly raised. Allendale’s starting point, with better crush and no export increase, is 221. Keep the soybean pricing matrix in mind, 150 million in US stocks = 1510 futures, 200 = 1400, 220 =1360 and 250 = 1295. As we have noted before, soybean price response sharply changes as stocks decrease into the 200 and below level. For now let’s say a 1400 futures price argument is reasonable. If we get into early December and the forecast reaching into January is still a problem then we can discuss +1400.

USDA’s annual Baseline Projections report suggested +3.4 million in plantings in 2024 to 87.0 million.

January Soybean Chart: This market remains in an uptrend. The overnight trade tested support for this uptrend and that test failed. The Outside Day closing higher is positive on the chart. Since we are still in an uptrend there are targets to discuss. The next resistance point is the high from 8/28, 1420. Also, there is an open upside intraday gap to the 8/28 close of 1416 ½. We won’t make any claims about testing the next chart point, the major highs from back in July, 1441.

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: We feel comfortable with saying soybean futures will likely see 1400. We’ll have to get to the second week of December before we can say +1400 is coming. IF Brazil’s forecast does not change, you can make some clear claims about the US balance sheet and much higher soybean pricing. IF the forecast does change, as it is so early in their season, you can unravel every bullish hope quite quickly. For producers we are holding cash beans unhedged…Rich Nelson

Trade Recommendation:

(11/20) Sell March 1300 soybean put market, risk 36, objective 0.

Wheat

New lows were posted for KC and Chicago futures yet again. Though the US is now priced below EU we have missed our needed export sales pace in three of four recent weeks. The US Plains may transition from a dry pattern this month to an improvement December – February.

SovEcon estimated November Russian wheat exports at 3.9 million tonnes. This is still a good amount but we will point out it would be -0.4 mt from last year. The prior four months of exports, 19.4 mt, were over last year for a combined +4.8. The wheat narrative has been consistent. Russian export increases far offset the relatively limited Ukraine export declines that were seen through October, -0.2 mt. The decreased exports you may have heard about are with corn, not really wheat.

Allendale has suggested that Russia’s export increases are a prime reason not to buy wheat on a flat price basis. We suspect their export pace will slow by the end of the year, more than they normally do. We may reconsider our consistent view “don’t touch the buy side of wheat” at that time.

USDA reported US winter wheat conditions were +1% from last week at 48% good/excellent. The trade estimate was 47%. The five year average for this week is 46%. Allendale will point out this is not a great rating. It is simply better than the prior three years of 32%, 46% and 46% for this week. USDA will report winter wheat conditions for another one or two weeks.

USDA reported US winter wheat planting, hard red/soft red/white, increased from 93% last week to now 95%. This will be the last planting report.

Ukraine’s first deputy agriculture minister reported the coming 2024 wheat harvest could run 18 – 20 million tonnes. This would be just under the 21.9 mt their government estimates for the completed 2023 harvest.

The grain association, UGA, warns that a planned railway freight tariff increase of 20% this coming January could restrict 2024 grain planting. They last increased the rate in June 2022, +70%.

Algeria has tendered to buy soft milling wheat for January/February delivery. Given that this is limited to delivery to just two ports it may not be a large purchase. Their last purchase in the first week of November, a regular buy, was said to total up to 580,000 tonnes.

Every third Thursday the US government’s weather agencies, NWS/NOAA/CPC, release updated long term forecasts for the US. The recent update suggested above-normal rains for much of the Plains hard red winter wheat area. Are two years of trying conditions the trade wonders if this year will show better conditions. Though spring rains are clearly the main yield determinant the trade will often trade psychologically based on perceived moisture recharge or deficits over winter.

Lloyd’s of London, Marsh, other insurance brokers and Ukraine’s state banks have agreed on a plan to reduce the insurance cost for Ukraine grain shipments. A discount would be offered from 14 different insurance companies.

USDA’s annual Baseline Projections report suggested total wheat plantings for the 2025 harvest, fall winter wheat in 2024 and spring wheat in 2025, would decline by 1.6 million to 48.0.

Wheat Summary: The general pricing story for wheat remains in place. Prices are being determined by the perception of Russian and Ukraine exports being unimpeded over the big picture. Tight US and world balance sheets are not driving prices. While we have been patient with this long term downtrend we assume Russian exports will be restrained after the new year and there may be a change to general flat wheat prices. 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.

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