Corn and soybeans see new lows. The trade hopes for a change on Friday's reports.

Grains

Normal and near-normal rains were seen in the Center/West region of Brazil last week. Two of those three states will see normal to lightly above-normal rains this week. Next week returns to below normal for all. The two states we monitor in the South saw below-normal rains last week. The two weeks ahead are normal to below-normal. 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 psychologically. Don't forget the US 2023 summer as we transitioned from June to July and the price decline. Pay light attention to weather at planting but almost no attention to weather in the vegetative stage. Pay a huge amount of attention to weather at reproduction and just after.

The next two weeks are forecast for mostly normal if not lightly above-normal rains in Argentina. 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.

On Friday the 12th USDA will release four big reports for grains. The first is a revision to the prior US corn, soybean and wheat production estimates for 2023. The last update was in November. The second is the quarterly Grain Stocks report. It will report old crop stocks left over after one quarter of usage on December 1. As we know export and other domestic use this fills in the Q1 feed/residual usage number. USDA will therefore adjust its whole-year feed/residual view on the supply/demand report. Changes from these two reports, as well as updated views on exports and ethanol/crush, will then be reported on the World Agricultural Supply and Demand Estimates report. The last one is the first USDA report discussing 2023/24 numbers, annual Winter Wheat and Canola Seedings. This report gives us the first look at fall 2023 plantings of winter wheat set for the 2024 summer harvest. There will be no new crop 2023/24 numbers and the monthly WASDE report.

Corn

New downtrend lows were made again. Brazil's weather will be okay this week. The market may be patient on the bullish looking two week forecast. Weekly export sales on Friday were disappointing. The market is not seeing a change to the general well-supplied US corn story.

Brazil's Customs Ministry reported December corn exports. They report 3.8 million tonnes shipped out last month. That was over the prior 3.5 estimate from the export association Anec. That would put December's exports at -0.2 mt over last year. Even with a higher than expected number it still fell short of last year. So we have April - November exports at +6.6 mt from last year. Then we have December falling. When you consider the Anec estimate for this month, 3.330 mt, it would be a sharp -3.0 decline from last year. Heavy exports than last year in the front of the marketing year. Now, lighter than last year in the later part.

On Friday USDA reported one bad week of export sales after several wins. Sales of only 367,484 tonnes were reported. To meet USDA’s goal remaining sales need to run +3% vs. the five year average. For 12 weeks sales have shown a great pace at +32% vs. the five year average. Friday's report was a surprise at -54% from average.

On Wednesday ethanol production was noted with 1.049 million barrels per day for last week's activity. That was 24% over last year. The prior week was also a positive surprise at +15%. These recent weeks have helped the year to date run push to 5.5% over last year. So far we remain ahead of USDA's whole-year corn for ethanol goal at +2.9%. The remainder of the year only needs to run +1.7% from last year. Though we remain ahead of USDA's goal so far we remain lightly concerned. Production has missed this +1.7% goal in 7 of the past 12 weeks. General gasoline demand has run only +0.4% since September. Let's see how this production pace fares as we get past the holidays before saying all is clear.

Last week USDA reported November corn for ethanol usage at 455 million bushels, +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.

Last week 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.

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 for that downtrend was made. Bulls can argue a small rebound to fill the upside intraday gap to the 12/29 close of 471 ¼. However, the downtrend remains until resistance at 474 ½ is broken.

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's remains in a downtrend. With Brazil's Center/West region seeing near-normal rains last week, and normal this week, it is removing risk premium on its way to our view of 430 economic value. Brazil's 1st crop has certainly been damaged but it is a small crop. Concerns over planting for the big 2nd crop have been temporarily eased with recent rains. 2nd crop yields cannot be lowered until weather during April is seen. We need a 400 - 600 million bushel change to US ending stocks to change this pricing story. While many are looking at the seasonal charts with hope we are skeptical of them working this year. For producers we continue to hold hedges...Rich Nelson

Working Trade:

(11/30) Sold March 480 call 15, risk 19, objective 0. Closed 3 3/4.

Soybeans

Soybeans ended the first week of the new year with new lows for the long term downtrend and a new lowest close. The market has found clear acceptance of lower prices after October lows were taken out last week. Weekly export sales were much worse than we expected. The beneficial changed Brazilian weather, right as reproduction begins, remains.

Brazil's Customs Ministry reported December soybean exports. They report 3.8 million tonnes shipped out last month. That was over the prior 3.5 estimate from the export association Anec. That would put December's exports at +1.9 mt over last year. April - November exports were record at +23.6 from last year. December now brings it to +25.4. The Anec estimate for January would appear to be low at 1.3. Keept in mind January is the year's low in exports. This number would actually be +0.5 from last year.

Since 12/15 there is only one overnight soybean export sale, a small one from 12/19. Chinese buyers have disappeared.

US soybean sales had been stronger than expected for weeks. Thursday's low 201,646 tonne weekly report changed that story. It was the lowest sale for this specific week in 16 years. To meet USDA’s goal the remaining weeks through August need to run -17% from average. Thursday's sale was -68% from the five year average. Allendale is +10 million bushels over USDA's whole-year view. If this recent changed pace remains we will adjust our number lower.  Brazil’s clear price advantage remains. There are concerns over recent declines in shipments. Current US soybean futures are priced now with a belief of lower than USDA exports.

AgRural estimates the Brazilian soybean harvest at 0.6% complete. This is next to the 0.4% from last year. “Early” soybean harvest is a miniscule amount. The bulk of production is harvested March - May. You can expect that to run just a little early this year.

The Brazil research firm, Cogo Consultancy, lowered their 12/8 soybean crop estimate of 160.0 million tonnes down to 155.24. This fits in with the prior 151.4 - 158.5 mt views reported so far this month by other private forecasters. Conab and USDA's numbers from December, only lightly lowered from their starting view, were 160.177 and 161.0 respectively. Allendale expects USDA to lower their view to 158.5 on Friday's coming report. 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.

About 44% of Brazil's soybean production comes from the main three states of the Center/West region. They are the three charts on the left side of tonight's picture. The largest is Mato Grosso who is responsible for 26% of the nation's total. The two states we disccuss in the South, Parana and Rio Grande do Sul, contribute 29% of the nation's production. Planting in normal years is October - December with the bulk of reproduction, yield determination, in January and February. Harvest runs March - May.

The USDA soybean crush report for November showed 200.1 million bushels processed, +5.5% from last year. With 576 million bushels crushed in the first quarter +4.0% from last year, we are curently on USDA's +4.0% whole-year view. Given that we'll have more plants online in the coming months we remain +10 million bushels vs. USDA.

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. In fact, current soybean futures are priced with the view of a decline. 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, 250 at 1295 and 300 at 1220.

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: Soybeans are in a downtrend and new lows and lowest close were just made today again. This is a tough trade as the trend is established and so far there has been no attempt to fill the upside gap or test the downtrend line. Bears would use the daily chart gap at much lower prices, 1212 ½ - 12/12 ¾, as the next objective. Until we find support and post a day that rejects lower trade, this is the chart discussion. Bulls could argue for a small move to fill the recent daily chart gap at 1290 ¾ - 1296 ¾. But that would not change anything. The general downtrend line at 1303 1/2 still needs to be taken out. A move past that would open up the intraday gap at the 11/22 close, 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 past six days of market action for soybeans has been a surprise. Futures are priced as though all Brazilian crop risk, and US soybean export hopes, have been removed. Additionally, with prices under 1295 futures are implying a decline in USDA's export view. What additionally surprises us is the market's confidence with this selling effort. We will not attempt to speculatively buy this market as this time. For producers we are holding cash beans unhedged...Rich Nelson

Trade Recommendation:

(1/3) Stand aside.

Wheat

With this week's moisture in the Plains and Eastern Cornbelt, as well as from pressure from competitor pricing, wheat futures fell. Though many could argue the general low from this long term downtrend is in place, it is tough to suggest it is time to rally.

Egypt has tendered for cargoes of milling wheat for Feb/Mar delivery. They have demanded offers to sell come with a quote both for a 180 day and 270 day letter of credit.

Algeria has tendered for cargoes of durum wheat.

On Friday USDA's weekly report showed 131,601 tonnes of US wheat export sales. To hit USDA's goal we only need to sell -37% vs. average through May. Wheat sales have been quite erratic but over 23 weeks have averaged +5% vs. average. Allendale is +20 million bushels vs. USDA.

After this week's 0.2 - 0.8 inches of water equivalent moisture in Kansas and Nebraska the next two weeks may see mostly normal precipitation for the Plains. Eastern Cornbelt areas, soft red, may see dryness after this week's 0.7 - 2.0 inches of good rain equivalent.

Last week a few select US states released their own Crop Progress numbers. This happens once a month during winter. This is separte from the weekly numbers from Washington, DC. The general trend in ratings for hard red winter has improved. From 11/26 to 12/31 Texas has improved from 57% good/excellent to 63%. Oklahoma increased from 56% to 70%. Kansas went up from 35% to 48%. Nebraska changed from 58% to 61%. Soft red areas decreased. Illinois went from 87% to 70% and Kentucky changed from 93% to 85%.

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.