December NOPA crush exceeds expectations.

Grains

Brazil's current weather forecast could be called mixed. The Center/West region will see below normal moisture this week. The two week forecast has waffled and is now normal to above normal. The South will see normal to above normal this week but dryness for week two.

Mostly normal rains are seen for both weeks of the current Argentine forecast. We have then at trend yields and may consider raising that if January/February rains run above normal.

Corn

March came within 1 cent of testing Friday's latest new low. Today's close was a new lowest close. Traders note Friday's USDA reports added to the US supply concern. The current South American forecast does not suggest enough of a problem to stop this concern.

USDA reported an overnight sale of 126,700 tonnes to buyers from Mexico. This is routine business for our #1 export customer. Their prior 175,000 overnight purchase was on 1/11. The most recent purchase before that was on 12/8.

The Rosario Grains Exchange has upped its view of the coming Argentine corn harvest to now 59 million tonnes. Their grain analyst suggested there was, “…a very good chance” it would eventually exceed 60 mt. USDA on Friday kept their prior 55 mt estimate unchanged.

Supply: The market looked for one message from USDA on Friday. “Is there anything here which disrupts the narrative of heavy US supplies”? The answer they received was that heavy US supplies just got moderately worse. USDA’s prior 2023 corn production estimate was raised by 108 million bushels today to now 15.342 billion. The trade estimate was for a minimal decline to 15.226 (ALDL 15.203). We already had a record US production in 2023. It was moderately increased. Yields were jumped 1.4% on this report, from 174.9 bpa last month to 177.3. This is now a new record yield, now exceeding the 2021 peak of 176.7. This 1.4% increase from the November yield estimate is tied for the second largest jump of the past 20 years. A light offset was the -0.6 million acre revision for harvested acreage, now 86.5.

Dec 1 Old Crop: Old crop stocks left over as of December 1 were showed at 12.169 billion bushels, lightly over the 12.050 trade estimate. Considering the higher production change than the private trade, this is within reason.

Demand and Stocks: When including a minimal change to the long completed 2022/23 year, the 2023/24 US balance sheet started out with 106 million more bushels than last month. USDA offset this partially, +25 million bushels for feed/residual and +50 for corn for ethanol. The recent, surprising, strength in ethanol production over the prior four weeks makes this move within reason. Exports were the area most of the trade was monitoring on this report. USDA chose not to make any changes from last month which may be a warning. US corn export sales are great. To meet their prior whole-year goal remaining sales only need to run even with the five year average. The past 15 weeks were quite strong at +26%. These changes helped push the US ending stock estimate up by 31 million bushels to 2.162 billion. The trade estimate was 2.105 (ALDL 2.075). The problem with corn is this long and slow downtrend has still to price in 1.9, 2.0 or even 2.1 billion bushels. Here we are now at 2.162. All of these stock numbers imply sub-$4.10 futures. Allendale’s current conservative downside estimate is $4.30. This downside estimate is likely a bit too conservative. Bottom line for today, there is no change in the well-supplied US corn story.

El Nino and Argentine Corn Yields: Argentina plants corn mid-September through November. Reproduction, the phase where weather really matters, is in January an February. 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 Chart: The long term downtrend remains. A new lowest close was made. There is an upside intraday gap at the 12/29 close of 471 ¼ but that is not in the short term discussion. The downtrend remains in place until resistance at 470 1/4 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 remains in a downtrend. So far, we don't have a story which disrupts the US supply narrative. We suspect our 430 downside target for futures may not be low enough. For producers we continue to hold hedges...Rich Nelson

Working Trade:

(11/30) Sold March 480 call 15, risk 19, objective 0. Closed 1 1/2.

Soybeans

Soybeans ended the day lightly higher. Though it was not a real rally, at least today's lows stayed away from Friday's lows by 17 ¾ cents. Another positive, we filled the main downside gap on Friday's spike low but have yet to return to that level. Friday's USDA reports still provide a hangover. US production was raised but USDA chose not to offset it with any reasonable demand increases. South American weather could be called mixed.

The monthly National Oilseed Processors Association report covering December soybean crush was positive at 195.328 million bushels. This was over the trade's 193.120 estimate. NOPA's report is closely watched as it covers 95% of US production. Additionally, it is released two weeks ahead of USDA's own whole-US number.

NOPA's December estimate is a new record for all time, wholly expected. It was 10.3% over last year's December. For disclosure, last year was an oddly low number itself so the comparison is not clean. Year to date crush is now 5.8% over last year. That is over USDA's whole-year goal of a 4.0% increase. If remaining crush is 4.5% over last year we will exceed USDA's current goal, not changed on Friday, by 20 million bushels. A 5.0% increase the remainder of the year will exceed USDA's current goal by 27 million.

AgRural lowered its 12/4 Brazil soybean crop estimate down from 159.1 million tonnes to 150.1. This would be the lowest of the legitimate crop forecasters so far. Another group, Hedgepoint, lowered their 11/24 estimate of 160.1 down to 153.4 Estimates from private forecasters in January range from 152.8 - 158.5. USDA and Conab are at 157.0 and 155.3 respectively.

There are now two oddballs in the Brazil crop guessing game. Though we do not consider these realistic we will report them.Patria Agronegocios had been an outlier with their estimates from both 11/30 and 1/11, now 143.18. Today a second was added to the list. A farming organization, Aprosoja Brasil, estimated Brazil's soybean crop at 135 million tonnes. This specific estimate would be a sharp -17% from USDA's original starting view of 163. Allendale will be lowering our 156.5 official view in the coming weeks.

The Rosario Grains Exchange upped their Argentine soybean production view to 52 million tonnes. The US ag attache is up to 50.5. USDA on Friday upped their view to 50.

Supply: 2023 soybean production was increased by 36 million bushels, now 4.165. The trade expectation was for a minimal decline to 4.134 (ALDL 4.118). Soybeans, different than corn, don’t have a record production. This is still the smallest production in four years and smallest total supply in eight years (beginning stocks). Yields were revised from 49.9 bpa to 50.6. That may not sound like much but this 1.4% increase is tied for the second largest increase in January in 20 years. There was a light offset from -0.4 million acres off their harvested estimate.

Dec 1 Old Crop: The December 1 count of old crop soybeans found 3.000 billion bushels. Given the higher production than the trade was looking for their 2.975 pre-report estimate was reasonable (ALDL 2.956).

Demand and Stocks: When including a minor change to beginning stocks from the long completed 2022/23 crop year, USDA started this month’s balance sheet with 31 million more bushels than last month. The bigger surprise was their lack of interest in adjusting demand by any real amount. Residual use was lowered by 3 million. The easiest call to make was that domestic crush should have been increased. Production over the Sep – Nov period was 4.0% over last year. USDA’s current, unchanged, goal for the whole-year is a 4.0% increase. Given more plants coming online in the coming months this category is likely 10 to 20 million bushels too low. Additional support comes for this view with Tuesday’s NOPA crush estimate for December suggesting a 9% increase over last year. Exports are the hotly debated subject for soybeans. Based only on sales, USDA would be viewed as too low. Remaining year sales could fall to -18% from the five year average to meet USDA’s current view. The prior 13 weeks, though with big week to week gyrations, averaged 24% over last year. But the export story is not clean-cut. Shipments over the past 9 weeks have been terrible, -29% from average. To meet USDA’s whole-year goal this must run at least -8%. Additionally, the US price disadvantage to Brazil remains. USDA chose to leave their estimate unchanged. With a moderate supply increase and a minor demand decline USDA’s ending stock view was raised by 35 million bushels to 280. The trade estimate was 243 (ALDL 232). We compute a 200 ending stock as implying $14.00, 250 stock at $12.95 and 300 at $12.20. In our view, soybeans are at economic value. We will note there is still considerable movement still ahead on this balance sheet.

El Nino and Argentine Soybean Yields: In normal years soybean planting is limited to November and December. Yield determination, weather during reproduction, is from January - March. 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 above-normal.

March Soybean Chart: Bears are still in clear control of the soybean market. Friday saw new lows and a new lowest close. We will give bulls two points here. The selloff on Friday filled that downside gap at 1212 ½ - 12/12 ¾ then rebounded back over. Today's trade stayed well over that level. We cannot argue a major low was made yet. Resistance for this downtrend is at 1287 3/4. That needs to be broken to fill the upside daily chart gap at 1290 ¾ - 1296 ¾. Past that there is another gap at the 11/22 close, 1374 ¼.

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 is currently trading USDA's view of US ending stocks. We can now argue that stock estimate is too low due to domestic crush. If the Brazilian weather forecast went back to solidly below normal rains for the rest of this month we would feel more confident about a strong rebound ahead. For producers we are holding cash beans unhedged...Rich Nelson

Trade Recommendation:

(1/3) Stand aside.

Wheat

Wheat removed some weather premium now that the near term forecast has switched from below normal to above normal. Cold snaps during winter dormancy rarely impact final production levels at the trade's expectation. Minneapolis wheat pushed to new downtrend lows.

Algeria's state grain buyer was said to have purchased a large 500,000 - 650,000 tonnes of milling wheat for April delivery. Origins were said to be French or Black Sea.

SovEcon estimates Russia's January wheat exports at 3.8 million tonnes. This would be even with last year's December. Russia's exports exceeded prior year levels from July - October. November and December were -0.9 and -0.3 mt from last year respectively. Allendale expects the coming months switch down to below last year.

Egypt announced they would be seeking cargoes of wheat for March delivery. They have shown a better interest since early December.

Dec 1 Old Crop: As usual, there were no changes to the 2023 US wheat harvest. The last time they did that in January was 2007. The December 1 count of old crop was found to be 1.410 billion. This represents old crop left over after six months of usage. This was just over the 1.387 trade estimate (ALDL 1.386).

Demand and Stocks: USDA’s 2023/24 balance sheet started off with 12 million fewer bushels than it did last month. USDA revised the long completed 2022/23 crop year. On the demand side only a 1 million bushel decline was noted for seed usage. No changes were made to their prior 970 whole-year export view. You could argue this category should have been raised. To meet this view the remainder of the year can see future sales fall to -35% from the five year average pace. The prior 24 weeks of sales were active at +2% vs. average. Ending stocks, what will be left over at the end of the marketing year on May 31, were lowered from 659 to 648 million. US wheat prices are not traded with the US balance sheet.

Fall 2023 US Plantings: The first new crop report of the year was released by USDA today. Fall 2023 winter wheat plantings, for the summer 2024 harvest, were estimated at only 34.425 million acres. This 2.2 million decline was under the 35.786 trade estimate (ALDL 37.287). Declines were noted for hard red at -1.7, soft red -0.5 and white -0.1.

Weekend's low temperatures in the Plains were close to forecasts. +1 was seen in Amarillo, Texas, 0 in Oklahoma City, Oklahoma, -8 for Garden City, Kansas and -13 for Kearney, Nebraska. Cold snaps during the winter months often bring quick and strong rallies that have a short duration. For full ethical disclosure, our weather and yield model for winter wheat does not track winter weather one bit. It is quite normal for winter wheat events to have absolutely zero bearing on final yields. Our focus is on spring rains.

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:

(1/12) Stand aside.