Ethanol production disappoints. First Notice Day deliveries directly ahead.

Grains

The three states in Brazil's dry Center/West region are Mato Grosso, Goias and Mato Grosso do Sul. MG is just over 25% of total soybean production for the country while the other two are roughly 10%. Over the next two weeks MG and Goias will see normal to below-normal rains and heat. It will not be as dry as the prior two months though. MGDS has changed. Last week it saw normal rains. The other two did not. MGDS will also see normal rains over the next two weeks. They are now off the list of concern. In the South the two states that are too wet will continue to see normal to above-normal rains over the next two weeks. There is a light, valid, production hit to expect from weather to this point for Brazil. We can't say it is time for the market to panic until perhaps the second week of December when we are seeing forecasts reaching into the important January timeframe.

Argentina is also off our list of concern. The forecast is normal to above normal rains. We have them at trend yields. We are still discussing the possibility of a change to El Nino conditions, above-normal rains. The current ENSO reading, 1.5 for August-September-October, is firmly in the El Nino area. This is the sixth strongest El Nino for this time since 1950. The two main models suggest that during January it may be up to 2.0 or 1.5. Either way, it is here and will be here during yield determination.  Allendale's El Nino/yield work shows strong consistency for Argentina, above trend yields in corn and soybeans. Our work suggests it is not statistically tied to Brazilian corn and soybean yields.

Corn

Another new low was noted for March. Today's trade, with a limited trading range, saw the lows ½ cent under yesterday's. The trade is bracing for likely deliveries against the December. Disappointing ethanol production may be an offset to the positive US export story. Light crop losses for the small Brazilian 1st corn crop may be balanced by a positive Argentina situation ahead.

The spread between March and soon to expire December corn futures, 14 ¾ cents on 11/1, has widened to over 25. This is a sign of clear confidence about an excess supply situation.

First Notice Day for December contracts is tomorrow. Positions held as of this afternoon are applicable for delivery. As of Tuesday afternoon there were still 82,922 contracts of December corn outstanding. That's a bit much.

Ethanol production last week, 1.011 million barrels per day, was -0.7% from one year ago. Our year to date pace is still strong, +4.6% from one year ago. However, that is mainly due to the lack of seasonal downtime in September. USDA's current corn for ethanol goal, 5.325 billion bushels, would be +2.9% from last year. To meet USDA's goal the remainder of the year needs to run +2.4% from last year through August. Of the past seven weeks we have missed that goal in six, including this week. The average of these seven weeks is +0.6%. We're going to miss USDA's corn for ethanol goal. Let's go over the numbers. If the remaining pace is +2% then the miss will be -16 million. +1% from here on out means the miss will be -56. Even with last year through August means -97. Allendale is currently -25 million bushels from USDA's whole-year goal and may consider increasing that miss. If we look at general gasoline use we can't find a reason to expect a jump in ethanol production. This past week's general gasoline demand was -1.3% from one year ago. Year to date, September 1 to current, is -0.4%.

Weekly export sales will be out tomorrow. The trade estimate is 600,000 - 1,200,000 tonnes for the Fri 11/17 - Thu 11/23 week. This estimate range would be -57% to -15% from the five year average for this specific week, 1,403,651. This would be one week of disappointment in an otherwise very strong sales environment. The prior eight weeks averaged +45% from the five year average. To meet USDA's current goal remaining sales through August only need to run even with the average. For this specific window of time there were two overnight sales totaling 232,000.

On Tuesday MB Agro suggested Brazil's big 2nd corn crop would run 90 million tonnes. We did not see an estimate for the current 1st crop. Conab was at 119.066 for a total corn crop on 11/9. That was made up of 25.860 for 1st crop and 91.22 for the big 2nd crop.

Few firms are posting updated Brazilian total corn crop estimates. The latest from last week was Agroconsult at 128.7 million tonnes. USDA on 11/9 was at 129. Conab on 11/9 was at 119.006. Two other private estimates this month include AgResource 11/8 at 123.5 and StoneX 11/1 at 128. We will point out there is a bit of disagreement between USDA and Conab for both the coming 2024 crop and even for the harvested 2023. That is not enough to change the US corn supply story.

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. 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. 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 by early December. 1 million tonne equals 39.4 million bushels of corn. Getting a little wild with numbers 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. We are aware much of the grain industry is already convinced of much more serious hits, 20% or 30% but we are not there. So far, there is no story of a needed 581 million bushel drop in US ending stocks. On top of that, frankly we're quite close to changing Argentina's yields to above trend. If the forecast for them moves up to above normal rains in January we have to do it.

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.

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 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. New long term downtrend lows were made today. 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. Our general discussion of 430 futures for a target remains. For producers we continue to hold hedges...Rich Nelson

Trade Recommendation:

(11/28) Sell March 480 call 15, risk 28, objective 0.

Soybeans

Three weeks ago we had a severe dry story for three Center/West states in Brazil and extreme wet conditions for the South. Now, we have a moderately dry forecast for two Center/West states. The third is off the list of concern. There were no overnight sales reported this morning. This week's export interest could be considered moderate at best. In about one month we'll be at Brazil's yield setting time.

There were no overnight export sales announced this morning. For the current Fri - Thu week there is only one at 123,300 tonnes. This is a step down from the prior two weeks that were moderate at 424,000 and 452,400.

December soymeal futures, ahead of FND, had an open interest of 17,359 contracts on Tuesday afternoon. December soyoil had 6,116 contracts outstanding.

Weekly export sales will be out tomorrow. The trade estimate is 850,000 - 1,500,000 tonnes for the Fri 11/17 - Thu 11/23 week. This estimate range would be -47% to +46% from the five year average for this specific week, 1,024,413. Soybean sales are a mixed story. We had four weeks that were -4% from average, one big week then -38% average on last week's report. Here we are with tomorrow's trade range about even with the five year average (the midpoint of trade expectations). To meet USDA's current goal remaining sales through August can run -6% from average. For overnight sales that hit in this window of time there were two on Friday 11/24 totaling 452,400. Given the Thursday holiday we are grouping these numbers into this sales window. Allendale is currently at USDA's whole-year goal on our own balance sheet.

So far, any rallies in soybeans are made on psychology/Brazilian weather. Bulls hoping for big US exports have two clear problems. The US is still overpriced vs. Brazil. It is a moderate problem for upfront deliveries and a significant disadvantage for anything three months out and beyond. The second is also with US river levels. The Mississippi River at St. Louis is currently -1.5 feet stage height. It is forecast to drop to -5.4 on 12/12. This would be even lower than the major low posted from the 2012 drought. That low level was -4.4 on 12/31/12.

Through last week Allendale had collected nine separate Brazilian soybean crop estimates in the month of November. The seven private estimates ranged from 156.1 million tonnes up to 164.7. USDA and Conab are at 163 and 162.42. So far, no one is really sticking their neck out. That is completely okay for this early time of year. On Wednesday MB Agro estimated 155.0. This is now the lowest yet. We're relatively okay with that as it is -5% from USDA.

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.

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.

As we have stated before, 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.

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 but will need to in a few months. Before touching exports Allendale's starting point is 221 with an eventual crush change. 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: Soybeans are in an uptrend. Bulls need to hold the 11/27 lows of 1323 ½. For now, the easy start to the bull argument is that we need to fill an intrady gap left from the 11/22 close of 1356 ½.  After that we have restance 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. 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 and see a threatening forecast in place before we can say any real rally past 1400 is coming. IF Brazil's forecast does not improve you can make some clear claims about the US balance sheet and much higher soybean pricing. IF the forecast does improve, as it is so early in their season, you can unravel every bullish hope quite quickly. We are supportive right now but fully understand this situation can 100% change. Weather in Brazil, specifically during reproduction, is the focus. Remember the summer US 2023 story. Don't get locked into one-sided bullish-only views. 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 20 1/8.

Wheat

A good gain was noted for the three wheat contracts. This week's discussion that Russia is wary of too many wheat exports is something to monitor.

First Notice Day for December contracts is tomorrow. Positions held as of this afternoon are applicable for delivery. As of Tuesday afternoon there were 13,182 contracts of December Chicago wheat outstanding. There are 4,710 contracts outstanding for KC wheat.

Weekly export sales will be out tomorrow. The trade estimate is 200,000 - 500,000 tonnes for the Fri 11/17 - Thu 11/23 week. This estimate range would be -38% to +54% from the five year average for this specific week, 324,077. US wheat export sales have been a disppointment. Though it is true that the past 17 weeks overall have been good at only -4% from average our concern is with the recent pace. The past five weeks specifically have averaged only -39% from the five year average. To meet USDA's current goal remaining sales through August need to run at least -24% from average.

The information minister of India announced they would spend over $141 billion to extend its free good program over five more years.

The Moroccan government announced it would offer subsidies to import up to 2.5 million tonnes of wheat from January - April. This import program would help offset this year's drought. This would be a continuation of a program covering the same amount back in July - September. USDA estimates their 7.5 million tonne production in 2021 was reduced to 2.7 in 2022 and 4.2 this year.

Heavy rains of 8 inches have been seen over two days in New South Wales, Australia. Victoria saw near 4 inches. After this year's El Nino based drought in Australia some areas are seen excess rains here during harvest. While this may not mean another production hit, it will be a quality concern. Australia plants April and June and harvests November and December.

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. 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. Remember, we're coming off last year's extreme peak of $427.50.

Ukraine's agriculture ministry reports 4.16 million hectares of winter wheat planting so far. They still maintain a view of a 4.36 total when complete. This will be -7% from last fall's planting.

The last weekly Crop Progress report of the year from USDA showed winter wheat ratings as of Sunday +2% from last week. Now at 50% good/excellent, this is the best rating for this week in four years. In the market's view, this 2023 fall planted crop, for harvest summer 2024 is differentiating itself from recent poor years. USDA will restart weekly ratings for this crop after winter dormancy ends on April 1. This is bearish psychologically. Ethically, we must inform you that rating at the end of fall have no real statistical tie to final yields. The ugly truth is that it makes no difference how great or terrible the crop looks headed into dormancy. Spring rains are the primary yield determinant. As you know futures will still go up and down during winter on various moisture patterns.

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.

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.

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