Grain markets prepare for four USDA reports on Friday.

Grains

Is the two week beneficial change in Brazil's weather story about over? Today's update now shows normal rains for Mato Grosso and Mato Grosso do Sul for the next seven days. The third state in the Center/West, Goais, will see normal/below. Next week returns to net drying for all three. In the South normal to normal/below is expected over two weeks.

Argentina will see normal to above normal rains over the next two weeks. We have then at trend yields and may consider raising that if January/February rains run above normal.

Allendale's president, Steve Georgy, and I recorded a special Snapshot webinar covering Friday's report. It is now out for subscribers.

On Friday 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

March futures hold just 6 cents over the low posted two days ago. Traders remain leery that USDA's four reports on Friday may not change the general supply story for the US. In addition to questions of how much of a Brazilian crop decline tomorrow, the trade now has light concerns over coming increases for Argentina.

USDA reported an overnight sale of 175,000 tonnes of US corn to buyers from Mexico. This is routine business for our #1 export designation.

Weekly export sales today cover Fri 12/29 – Thu 1/4 activity. Sales of 487,609 tonnes were reported. The trade estimate of 400,000 – 1,000,000. This was the second lowest sale for the year. That is completely normal and expected for this specific period. 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 vs. the five year average. 11 of the past 15 weeks have been over that goal. US export prices have an advantage over BZL. If sales run +10% through August we'll be 82 million bushels over USDA. If sales run -10% then we'll miss by -88. Allendale is +50 million bushels vs. USDA's whole-year goal.

The Rosario Grains Exchange raised their 56 million tonne Argentine corn crop estimate from 59. USDA last month was at 55. Though the increase over USDA, 4 mt, is a bit much, an increase of some sort is not out of line.

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.

The International Grains Council raised its world corn production forecast by 7 million tonne to now 1.230 billion tonnes. This is over USDA's December estimate of 1.222. These 2023/24 numbers are clearly over the prior year's damaged 1.157.

Patria Agronegocious lowered their view of the Brazilian corn crop. Their prior 11/30 estimate at 112.51 million tonnes was lowered to 110.29. We had suggested this group was not realistic back in November when the trade was at 119 - 129. We suggest they are not realistic right now. Conab this week lowered their 118.528 mt view to 117.603. USDA was at 129.0 mt for Brazil October - December. The trade expects 125.3 from USDA tomorrow.

University of Illinois released updated crop budgets for 2024. For highly productive ground, 227 bpa yields, they estimate it would take $3.58 per bushel in Central Illinois to cover production costs excluding land. When including their $363 per acre assumed rent it would take $5.18 per bushel for cash corn to breakeven. With their estimated cash corn price for the 2024 crop, $4.50 per bushel, they are assuming a sharp -$154 per acre loss. This would be the worst loss in our database of U of IL numbers going back to 2009.

Estimates for Friday's four reports have been released. For corn the numbers start with a revision to this past fall's 2023 US harvest. The trade expects a light 12 million bushel decline from USDA's prior estimate to now 15.226 billion (ALDL 15.203). This still remains a record production level and a full 1.5 billion over the 2022 crop. There is no change seen for the 174.9 bpa yield, only -60,000 for harvested acreage. The trade estimate for old crop corn stocks as of December 1, what is left over after one quarter of usage, is expected at 12.050 billion (ALDL 12.007). This would obviously remain over last year's December 1 count at 10.821. This report is quite important for corn as it helps us compute the large miscellaneous demand category, feed/residual. Surprises higher or over on this old crop count imply worse or better than expected feed/residual. Feed/residual is 40% of US corn demand. Also, that feed/residual demand is not equal among the four quarters of the year. The largest quarter for this large demand category is September - November. There is always a possibility of surprise here. As a reminder, US corn operates on a September 1 - August 31 marketing year. A surprise here with Q1 feed/residual would likely help USDA adjust its ending stock estimate. In the grain world “grain stocks” means the quarterly old crop count. The words "ending stocks" are reserved specifically to discuss what is left over as of August 31. USDA's view of corn ending stocks for this 2023/24 year started out large at 2.222 billion in May. They remain large at 2.131 as of the December report. For the update on Friday the trade expects a light -26 million revision to 2.105 (ALDL 2.075). If the trade expects only -12 million for production but stocks to fall -26 there is an expectation for a light demand increase. Allendale agrees. Though this report should be lightly positive for corn it still does not change the general large US supply narrative.

The third report out on Friday, the normal monthly supply/demand report (WASDE), also holds estimates for other countries. At this time of year Brazil and Argentina are a key focus. The trade expects a hefty -3.7 million tonne decline for Brazil down from 129.0 to 125.3 (ALDL 128.0). They only see -0.2 for Argentina from 55.0 to 54.8 (ALDL 55.0).

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 this week. 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 472 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. Brazil's Center/West region will saw near-normal rains last week and this week. The forecast appears to be changing back to mostly below-normal. For corn specifically, we would hesitate to say this means a rally. At this time the trade is not expecting Friday's USDA reports to change the US corn story. We need a 400 - 600 million bushel change to US ending stocks to change this downtrend. 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 4.

Soybeans

Soybeans pushed to a new low for the downtrend. The day's close tied the current lowest-close. While the trade has been focused on Brazilian production it was surprised to see two new higher estimates for Argentina.

Sales of 280,398 tonnes were reported for soybeans. This was under the trade estimate was 325,000 – 950,000. We would suggest the trade estimate was simply too large. 1) There were zero overnight export sales for this specific week. 2) This is a very low sales week seasonally. In fact, compared with the 164,968 tonne five year average sale for this week we'll call today's report lightly supportive. 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. 9 of the past 13 weeks met that goal. This week's sale was +70% from the five year average. Allendale is +10 million bushels over USDA's whole-year view. Brazil’s clear price advantage remains. There are concerns over recent declines in shipments. Shipments over the past 9 weeks were -29% vs. the average. They need to be -8%.

Two new estimates for Argentina's soybean crop were released today. The US ag attache suggested a 50.5 million tonne crop. The Rosario Grains Exchanged raised their 50 mt view to 52. USDA last month was at 48.

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.

Patria Agronegocious lowered their view of the Brazilian soybean crop. Their prior 11/30 estimate at 150.67 million tonnes was lowered to 143.18. We had suggested this group was not realistic back in November when the trade was at 155 - 165. We suggest they are not realistic right now. Other private estimates in January run 151.4 - 158.5. Conab this week lowered their 160.177 view to 155.269. USDA was at 161.0 mt for Brazil last month. . The trade expects 156.3 from USDA tomorrow.

The Malaysian Palm Oil Board reported December palm oil statistics Tuesday night. Production that month ran 1.551 million tonnes, under the 1.605 trade estimate. Exports in December ran 1.334 mt, next to the 1.335 trade estimate. This left end of December stocks at 2.291 mt, under the 2.365 estimate. This was a four month low.

University of Illinois released updated crop budgets for 2024. For highly productive ground, 72 bpa yields, they estimate it would take $7.18 per bushel in Central Illinois to cover production costs excluding land. When including their $363 per acre assumed rent it would take $12.22 per bushel for cash soybeans to breakeven. With their estimated cash soybean price for the 2024 crop, $11.50 per bushel, they are assuming -$52 per acre loss. This would be the worst loss in our database of U of IL numbers going back to 2009. Their numbers suggest soybean planting would result in less loss than corn, $102 per acre difference.

Estimates for Friday's four reports have been released. The expectations for soybeans mirror corn. The trade sees a light production decline and a light ending stock decline. Different than corn, which has to seen monumentus news to change the supply story, this one could move soybeans.

The trade expects the fall's 2023 US harvest to be lowered by a light 5 million bushels to 4.127 billion (ALDL 4.118). This does not change the general 2023 story much. It is still the smallest harvest in four years. But that's the only story. Total supply is production + beginning stocks + imports. Different than four years ago we did not have a large beginning stock this year. When evaluating total supply, not just production, this year is the smallest in eight years. The trade estimate for the light production revision on Friday is made with no change in yield and -40,000 for harvested acreage. The December 1 count of old crop, the Grain Stock report, is usually not a big market mover for soybeans. Different than corn, the miscellaneous use category is relatively small in soybeans. For this report the trade expects 2.975 billion left after one quarter of use (ALDL 2.956). This is just under last year's 3.021. As with the comment in corn let's be clear about the separate terms “grain stocks” and “ending stocks”. For the third report on Friday, the normal supply/demand report, the trade expects stocks to decline from 245 million in December to 243 (ALDL 232). The trade expects -2 million for production and -2 for ending stocks.

The trade will be looking closely at changes for South American production on Friday. USDA can hold back from adjusting Brazil's corn crop for months if they wanted. For soybeans, which see reproduction here in January and February, they can make changes. The trade expects a hefty -4.7 million tonne decline for Brazil down from 161.0 to 156.3 (ALDL 158.5). They expect an increase for Argentina, from 48.0 to 48.9 (ALDL 48.0).

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: Officially, bears are still in clear control of the soybean market. New lows for this downtrend were made. Bears would use the daily chart gap at lower prices, 1212 ½ - 12/12 ¾, as the next objective. Bulls are eyeing that daily chart gap at 1290 ¾ - 1296 ¾ that was left just five days ago. Also in that region, we could finally test the general downtrend line at 1294. A break of that line 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 market has accepted the sell side of the trading ledger much better than we expected in the past two weeks. So far, though Brazil may return to drying in two weeks, this market remains weak. For producers we are holding cash beans unhedged...Rich Nelson

Trade Recommendation:

(1/3) Stand aside.

Wheat

Wheat traded lower. Weekly US export sales this morning were disappointing. The trade is preparing for this weekend's cold snap and pondering any potential damage to the dormant US crop. 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.

USDA reported 128,058 tonnes for last week’s wheat export sales. The trade estimate was 200,000 – 450,000. 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 -14% from average. To hit USDA's goal we only need to sell -35% vs. average through May. Wheat sales have been quite erratic but 24 weeks have now averaged +2% vs. average. Today's report was one of those oddly low numbers at -65% from the week's five year average. Allendale is +20 million bushels vs. USDA.

The International Grains Council raised its world wheat production forecast by 1 million tonne to now 788. This remains over USDA's December estimate of 783. These 2023/24 numbers are just under the prior year's 790.

Yesterday's purchase of durum wheat from Algeria's state grain buyer was said to have totaled 250,000 - 350,000 tonnes. Canada, Mexico and Australia were said to be supplying locations.

Forecasts suggests this weekend's low temperatures in the Plains will run +1 in Amarillo, Texas, -1 in Oklahoma City, Oklahoma, -12 for Garden City, Kansas and -12 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.

Estimates for Friday's four USDA reports have been released. For wheat there are two stories to discuss. The first is the old crop balance sheet. But for wheat specifically, we also have our first report discussing something with new crop.

For the old crop 2023/24 balance sheet the trade expects no change to the 2023 US wheat harvest. That is normal. The September Small Grains Summary solidifies this number. The last time USDA chose to adjust production on this report was back in 2008. The next question is then the December 1 old crop stock number. US wheat operates on a June 1 - May 31 marketing year basis. This means we'll get an update on old crop now after two quarters of use. Wheat, like corn, does have a feed/residual use category that is quite hard to estimate. Over the past five years September - November feed/residual use has had an 85 million bushel range from high to low. We can get a surprise from the Grain Stocks report. The trade estimates 1.387 billion (ALDL 1.386). The focus will still be on USDA's view of the May 31 ending stock number. The trade says expect almost no change, 659 million bushels last month to now 658 (ALDL 659). As we have stated clearly before, we'll monitor this report but will not use it to estimate wheat pricing. US wheat prices have not been tied to balance sheet numbers for the past two years, unlike corn and soybeans.

The fourth report on Friday is the very first new crop report from USDA. It only reports an acreage survey of US producers for the fall 2023 winter wheat planting. There is nothing else in this report, just estimates of winter wheat acreage. The trade guess calls for -0.9 million acres from fall 2022 to now 35.786 (ALDL 37.287). Allendale differs from the trade estimate at +0.6. The breakdown in these categories is -0.6 for hard red to 25.113 (ALDL 26.335), -0.3 for soft red to 7.077 (ALDL 7.240) and -49,000 acres for white winter to 3.595 (ALDL 3.712). There are no 2024 corn or soybean acreage estimates in this report. The next new crop update from USDA will be their February AgForum conference which holds USDA's own view of 2024 full corn, soybean and wheat balance sheets. That is not considered official USDA though. After that you have the March Prospective Plantings. The first official USDA 2024/25 numbers will not show until May.

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.