Crush plant fire pressures soybeans. China buys wheat.
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 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.
Corn
Though corn is not rallying, it is holding 15 cents over the new downtrend lows posted just three sessions ago. Today's trade was a quiet one with the day's small 7 ¼ cent range posting an Inside Day. South American news remains mixed. Minimal crop losses for the small Brazilian 1st corn crop may be balanced by a positive Argentina situation ahead. Though US corn exports are great, it is not enough to change the large supply narrative.
An overnight export sale of 267,044 tonnes was reported for buyers from Mexico.
Friday afternoon USDA released the monthly corn for ethanol usage. For October USDA reported a strong 461 million bushels. That was 2.9% over the previous year. September, with no seasonal downtime maintenance this year, was also strong at +12.2%. Year to date run is so far +7.2%. We are ahead of USDA's whole-year goal of +2.9%. This is good news. However, our general concern about corn for ethanol remains. To hit USDA's goal the remainder of the year needs to average +2.1% vs. last year. That sounds okay but like with our weekly ethanol production report, we must note six of the past seven weeks of production have missed that goal. They 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 picked up Friday afternoon, 682 contracts. The total now comes to 873.
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 we see 2.106 billion bushels. Last month was 2.156. We have +75 vs. USDA for exports but -25 corn for ethanol. For Brazil we are at 128 million tonnes for production, USDA 129 on 11/9. This is not enough of a decline to be bullish. We are at USDA's prior 55 mt estimate for Argentina.
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.
The price advantage in US corn remains in place. Near term delivery over the next three months ranges from $14 to $25 per tonne. Four months out Brazil is cheaper by $11
Weekly export sales on Thursday were great at 1,927,760 tonnes. This was the best sale for this specific week in eight years and +37% vs. the five year average. If sales run even with the average through August we'll beat USDA's current goal by 20 million bushels. A +10% pace pushes that to 120. A 20% pace would increase to 235 over. Allendale has increased our +50 million bushel vs. USDA view to now +75. We may increase this overage again.
The Buenos Aires Grains Exchange estimates Argentine corn planting at 32% complete.
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.
Later this afternoon USDA will release corn for ethanol usage for the month of October. This is more important than the weekly ethanol production numbers as it also includes the second factor, corn for ethanol efficiency rates. USDA is at +2.9% year/year in corn for ethanol. September usage, with the lack of normal downtime maintenance, was +6.0%. Allendale has moderate concerns about USDA's whole-year estimates as ethanol production rates have slipped in recent weeks.
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 major low December 7. 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. 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. 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 19 1/4.
Soybeans
As with the theme from last week, soybeans are trading much worse than fundamental news would suggest. Today's trade, helped by the news of a fire at a smaller US crush plant, posted its lowest close since 10/26. This market has broken its uptrend and has retraced more than 50% of the prior two month rally.
There were no overnight export sales announced for soybeans this morning. There were two on Friday. USDA did report 183,000 tonnes of soymeal was sold to buyers from the Phillippines.
ADM reported a fire at their Kershaw, South Carolina soybean crush plant on Sunday. The plant is closed and the company has not released an estimate of restarting. This is a relatively small plant. We estimate it runs about 50,000 bushels per day for optimal capacity.
Friday afternoon USDA released the monthly domestic soybean crush. We already say the October NOPA numbers so this is not a big market mover. For October USDA reported 201.4 million bushels of soybean use. The trade estimate was 201.1. That was 2.4% over the previous 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%. Officially we are behind the year's needed pace. However, Allendale believes it is possible to meet and exceed USDA with new plants coming online as the year progresses.
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 we see 227 million bushels. Last month was 245. We have +10 vs. USDA for crush and +10 for exports. USDA could hold stable on their numbers. For Brazil we are at 161 million tonnes for production, USDA 163.0 on 11/9. This is not enough of a decline to be bullish. We are at USDA's prior 48 mt estimate for Argentina.
AgRural this morning estimated Brazilian soybean planting 85% complete. This is still under last year's 91% pace.
AgRural lowered their view of Brazilian soybean production down from 163.5 million tonnes on 11/13 to 159.1. On Friday StoneX lowered their 165.0 view to 161.9. These are still within the general range of the private trade, 155 - 164.7. USDA is at 163 and Conab is at 162.42. We do not view Thursday's 150.67 estimate from Patria Agronegocios as realistic at this time.
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.
The Mississippi River at St. Louis, currently -1.5 feet stage height, will fall to -4.8 by 12/18. This would be even lower than the major low posted from the 2012 drought. That low level was -4.4 on 12/31/12. This is an issue for soybeans were the US shipping season is more front loaded than corn.
StatisticsCanada, the government agency, reported 2023 canola production at 18.3 million tonnes. That was on the trade expectation. This is just over last year's 17.4.
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.
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.
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. 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. Instead of discussing upside we have to note today's close is the lowest since 10/26. Next support on the charts is the 1297 ½ low from 10/25.
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 itself trading worse than the fundamental news flow would suggest. Today's close would suggest the trade believes USDA will keep last month's 245 ending stock estimate unchanged on Friday's report. We're now back to one month ago prices and now below the 50% mark of this general two month long rally. We still feel comfortable with saying soybean futures will likely see 1400 but 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 30 ½.
Wheat
China's purchase of US wheat, announced this morning, helped wheat futures continue last week's rebound from new contract lows.
A surprising 440,000 tonne purchase of US soft red winter wheat was announced by USDA this morning. Their last purchase was 110,000 tonnes on 11/22. This purchase brings their total to 1.449,873 for the year.
Gains on the fourth day of this rebound were more limited. There is a changed view starting to show regarding Russian wheat exports. This week's US export sales report showed a positive rebound after weeks of disappointment.
Deliveries Friday afternoon were moderate for wheat. 217 contracts were posted for Chicago, 124 for KC and 25 for Minneapolis.
StatisticsCanada, the government agency, reported 2023 wheat production at 32.0 million tonnes. That was just over the 31.1trade expectation. This is the lowest in six years.
Algeria has tendered to buy cargoes of durum wheat for January/February delivery. In their prior purchase of durum, back on August 31 by our records, it was said to be 550,000 - 600,000 tonnes.
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 we estimated 684 million bushels, unchanged from USDA last month. After this morning's overnight export sale announcement we will say USDA will likely lower their US stock number.
The Buenos Aires Grains Exchange has eased its concern over the wheat harvest. They suggested late season fronts may not have been as bad and they may eventually raise their current 14.7 million tonne production estimate. USDA is at 15.5. Argentina is not the largest producer but they export about ⅔ of production. The exchange estimates harvest, which runs November and December, is 36% complete.
Allendale over the past two weeks has lightly been adding in a changed narrative for general wheat prices. We have suggested Russian exports may not just seasonally decline in the coming months. There could be light government intervention. A Russian newspaper reported a government working group suggested if domestic stocks fall below 10 million tonnes then an export ban would be needed. We would not expect any outright ban ourselves. Perhaps a limit could be seen.
It is not just a question about January - June Russian wheat exports. Things may be changing right now. SovEcon lowered their November export estimate from 3.9 million tonnes to 3.8 this week. It is not much. But they went from -0.4 mt from last year to now -0.5. Exports July - October were all over last year, a +5.2 increase total.
Russian wheat prices for export have risen a little. The latest quote for 12.5% protein milling wheat out of Novorossiysk is $240.50 per metric tonne. That is off the $225 low from 10/10 and the year's major low of $223.50 from 6/13. This is not a major rally but a start. Remember, we're coming off last year's extreme peak of $427.50.
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.