Four week downtrend in soybeans continues after a beneficial Brazil forecast.

Grains

The general South American forecast has improved. On the Brazil side week one ahead still shows normal to below normal moisture. However, the second week shows normal to above normal for the dry Center-West. This occurs in the first week of January, the start of reproduction. While the general long term forecast is for moderate problems to remain, this one week switch is seen at a very important time. For years we have laid out a clear fact-based approach to yields. Weather during reproduction, weather just after and the planting date are the only factors with a strong statistical tie to yields. While we understand much of our client base may disagree with us, from a statistical basis weather during the vegetative growth stage can almost be ignored. If that is the case, then bears can simply suggest this is exactly how the US was in the third week of June before the weather shift in July. We are not expecting this weather change to be the new pattern and last through January. However, bears are correct in noting that for as long as it lasts, this weather change is validly bearish.

Argentina has been set for trend yields with generally normal rains recently. That holds for week one. But week two does show normal to above normal. We're still quite cognizant of the fact a normal El Nino pattern is for above normal rains and above normal yields.

Argentina's new president laid out an economic program today to revitalize its economy. A signed decree note measures to end limits on exports of various goods and reduced regulations. There are also plans to privatize state owned firms. Though agriculture is a surprised at their plans to raise exports on corn, wheat, soymeal and soyoil export tariffs lightly, the world trade would still call the sharp devaluation of the peso and clearly net positive for their exports when do they have a harvest.

Corn

Corn lightly recovered from fresh new downtrend lows posted yesterday. The day posted an Inside Day with a range tucked within the prior days range. That is generaly a mark of indecision. Coming off new contract lows, an indecisive day higher is not positive. Both Brazil and Argentina will see above normal rains in the two week forecast. Weekly export sales were disappointing after 11 strong weeks.

Weekly export sales today cover Fri 12/8 – Thu 12/14 activity. Sales of 1,013,095 tonnes were reported. The trade estimate was 800,000 – 1,500,000.  

USDA’s current 2.100 billion bushel goal for the year would be -2% from the five year average pace. Our year to date sales are -4% from average. To meet USDA’s goal remaining sales need to run even with vs. the five year average. For 11 weeks sales have shown a great pace at +43% vs. the five year average. This week was a disappointment at -41%. US export prices have an advantage over BZL. If sales run +10% through August we'll be 91 million bushels over USDA. A 20% pace would increase to 185 over. Allendale is +50 million bushels vs. USDA's whole-year goal.

Strategie Grains released its first view of the world 2024/25 situation. They expect world corn production minimally lower next year, from 1.186 billion metric tonnes to 1.184. USDA has a different view of this year's production, 1.222 bt. They will release their first official world views in May. Allendale would lean for a light net increase in corn.

On Wednesday the EIA reported ethanol production the prior week, 1.071 million barrels per day, was +4.1% from one year ago. With our current year to date pace at +4.0% the remainder of the year needs to run at least +2.5% to meet USDA's goal. Only two of the past 10 weeks have met that goal. General gasoline demand this past week was +0.5% from last year. Since September 1 year to date demand is +0.3%.

Though we have had a few stories out this week showing concern for Brazil's corn crop the US market is not showing much interest. There were three concerning stories on Monday and one on Tuesday. Tuesday's story was that the Brazilian pork and poultry producer organization, ABPA, warned of higher costs for domestic corn in 2024. They also raised the possibility of increased imports from Paraguay, Argentina or even the US. The president of the organization said production would decline from the 2024 harvest vs. 2023. Tuesday's chart shown in this commentary showed Brazil's interior cash corn price had risen 57% rally from lows in July. As you know US corn prices are driven from a significant extent on the US balance sheet. Just because their price is rallying does not mean our price had to.

The argument for big imports in Brazil is wrong from two fronts. It is very early in the growing season to make strong high confidence claims about production. Also, Brazil does not exactly import much when they have crop problems. Over seven prior years, yes including crop problems, their imports ranged from 0.9 - 2.8 million tonnes. USDA's current “all clear” balance sheet suggests 1.2. This ABPA story is more psychological than solid at this time.

There were three positive Brazil stories out on Monday. The first was that a director with a Brazilian company called VLI suggested agribusiness is expecting problems from general Brazilian dryness in the Center/West. The official with this railway and port terminal firm suggested the corn harvest, in the Northern region, would fall 15%. The second was that US fertilizer producer, Mosaic, expects Brazil's 2nd crop corn production to drop by 12%, 12.7 million tonnes. This is just under Conab's current view. The company's vice-president of market and strategic analysis reports, "I would call it a very plausible downside scenario because of how late the crop's going to go in, how dry it currently is and how it's likely that rains will shut down before that safrinha corn matures". The third was that an official at another fertilizer producer, Oslo-based Yara's Brazil unit, suggests farmers in the Center/West region only have 60% of fertilizer needs booked. That is down from a normal amount of 80% by this point. This would suggest some hesitancy with the coming large 2nd crop corn planting next month.

Though there is concern over this coming 2nd crop corn planting in Brazil it is not yet time to officially hit production numbers. USDA this month left their view unchanged from last at 129.0 million tonnes. Conab, which already started out with a lower estimate than USDA, lowered theirs from 119.066 to 118.528.

Last week Argentina devalued the peso against the US dollar by more than 50%. So far this is no confirmation of the government's plan to raise the current 12% corn export tariff to 15%. The peso devaluation more than offsets the light coming increase in the export tariff.

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 oversupplied US 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 and lowest close were made yesterday for this long term downtrend. There is no breakout yet from recent highs which are minor resistance at 493 ¼ - 496 ½. Last week's trade rejected 493 ¾ and 492 upside attempts.

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 must disclose the bull stories coming out of Brazil. But we must also point out the US market has yet to change. New lows were made and with confidence yesterday. The second week Brazilian weather forecast is beneficial. They are preparing rigth now for the coming planting of the big second crop. While many are looking at the seasonal charts with hope we are skeptical of them working this year. 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 10 5/8.

Soybeans

Soybeans lightly broke the 12/7 prior lows yesterday. Today this market tested lower pricing with clear confidence. A positive weather forecast for both Brazil and Argentina is now expected. Though this morning's weekly export sales, covering last week, were positive the trade notes this week's overnight sales interest is low.

Four days of this week have gone by. There is only one overnight sale, Tuesday's 132,000 purchase from an unknown buyer. This week's Chinese interest is a bit light.

Two more Brazilian soybean production estimates were released. Celeres has suggested 156.5 million tonnes while Rabobank suggested 158. The prior two before that were Itau BBA at 153 and Abiove at 161.9. Conab and USDA, recently lightly lowered, are currently 160.177 and 161 respectively. We do have the trade leaning lower than both government estimates. On the other hand, these are not panic declines. Allendale has suggested up to a 4% decline from the limited impact from later plantings and a light hit during the vegetative growth stage. That only puts a production decline to 156.5. As tonight's chart shows, a general trendline of trade estimates since November pretty much puts us right at the level.

Sales of 1,989,428 tonnes were reported for soybeans. The trade estimate was 1,500,000 – 2,500,000. A good sized number was expected as overnight export sales last week were strong at 1,436,500. USDA’s 1.755 billion bushel soybean export estimate is -11% from the five year average sale. Year to date sales are currently -8% from average. To meet USDA’s goal the remaining weeks through August need to run -18% from average. This week's sale was positive at +6% from the five year average. Brazil’s clear price advantage remains so we are hesitant to get too excited just yet.

Allendale is +10 million bushels over USDA's whole-year view.

Argentina's ag ministry lightly increased its view of currently active soybean plantings from 16.6 million hectares to 16.7. The increase is not a large one at all. But a planting increase combined with good weather ahead is negative psychologically.

Last week Argentina devalued the peso against the US dollar by more than 50%. This week their government said they would try to raise export tariffs from 31% to 33% for soymeal and soyoil exports. So far, the goverment says no change to soybeans which are currently at 33%.

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 consistent change from normal precipitation to normal El Nino above-normal.

USDA has ending stocks at 245. We can prove their domestic crush estimate is low by 10 - 20 million bushels. We cannot really jump export sales much at all though. 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 and 250 at 1295. We would expect prices to hold a light premium over this implied 1295 price in the coming weeks.

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: The general trend over six months is sideways. But the recent action over four weeks is down. Yesterday's trade lightly broke the prior 12/7 lows. Today's trade confidently pushed below that point. From a chart perspective this market is in a short term downtrend and only has the major low from 10/11, 1282 ½ left as support. Bulls need to see a successful break of this downtrend, 1334 ¾ tomorrow, before discussing higher prices. There is still an intraday gap left open at higher prices, the 11/22 close of 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: Though we may not like it the soybean market is correct in this price break. Concerns over Brazil have very lightly eased over the past month. Argentina's situation has improved. US soybean export sales have been positive in five of the past six weeks but few are ready to suggest this will be the norm unless Brazilian losses are confirmed. Given this weather forecast change right at the start of reproduction, bears have an argument for now. We can agree that this market should be supported over 1295. But the argument needed for a rally is not quite there yet. There are still a lot of ups and downs ahead as we near the very important weather window for Brazil. If the forecast turns back to normal precipitation and stays there then you can validly remove all risk premium. For producers we are holding cash beans unhedged...Rich Nelson

Closed Trade:

(11/21) Sold March 1300 soybean put 17, risk 36 filled 12/21 for -$950.

Wheat

Wheat traded mixed. Weekly export sales were disappointing. The updated US weather forecast may insure the uptrend in the Chicago/KC spread remains in place.

On every third week Thursday of the month the government's weather agencies release revised long term weather forecasts. Today the Climate Prediction Center noted a January - March forecast showing normal moisture for Texas and Oklahoma but above normal for Kansas and Nebraska. Their prior December - February view showed above normal for the Southern Plains. We'll still call this forecast generally beneficial for US hard red winter wheat. We will note the Eastern Cornbelt, where US soft red winter wheat is grown, sees both above normal temperatures and below normal precipitation. This forecast should keep the general increase in Chicago vs. KC wheat in place.

USDA reported 322,702 tonnes for last week’s wheat export sales. The trade estimate was 200,000 – 600,000. USDA’s 725 million bushel export goal, for the year that started June 1, is -19% from the five year average sale. Year to date sales are -13% from average. To hit USDA's goal we only need to sell -36% vs. average through May. Wheat sales have been quite erratic. Over 21 weeks though the run is +7% vs. average. This week, within that 21 week count, was -32% vs. average. Allendale is +20 million bushels vs. USDA.

Strategie Grains released its first view of the world 2024/25 situation. They expect world wheat production to increase from 745 million tonnes in 2023 to 768.8 next year. USDA has a different view for 2023, 783. They will release the first official world view in May. It is completely okay for USDA and this private French firm to have different numbers for the same 2023 year. USDA operates with a “US harvest first” view for the marketing year. For the general message though, higher production in 2024, Allendale cannot disagree. El Nino dryness was an issue for some countries this year.

Last week Argentina devalued the peso against the US dollar by more than 50%. The government wants to raise the current 12% wheat export tariff to 15%.

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. Separate from China's purchases 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. Though we are not exactly wheat bulls we can say we are no longer bears...Rich Nelson

Trade Recommendation:

(12/21) Stand aside.