Grains
Is the two week change in Brazil's weather story about over? In the closely monitored Center/West region rainfall last week was normal for one of the three states and near-normal for the other two, a positive change. This week will continue that story with normal to lightly above normal rains for two of those states, Mato Grosso and Goais (pronounced “go yise”). The third of those states, Mato Grosso do Sul, will see below normal. That's kind of okay as they've been a little better off than the other two. But now we're seeing this week two forecast suggest we may return back to below normal for the Center/West. If we only had a two week reprieve in dryness then we may see a quick change in price. For the South we'll see one of the two main states receive below normal rains and the other normal to above-normal over the next two weeks.
We have no concern for Argentina's crops. The next two week forecast is mostly normal rains with some areas lightly above normal. As a reminder, strong El Nino years like this generally bring above-normal moisture and above trend yields. If we see above normal rains stay consistent we will up our forecast.
Allendale's president, Steve Georgy, and I will hold a special Snapshot webinar covering Friday's report. It will be out Wednesday afternoon. We will discuss not just the trade estimates and Allendale's, but also the history of surprises on this report.
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
New downtrend lows were made again. This time by ¼ cent. Brazil's weather will be okay this week. Next week may return back to dryness. On the other hand trade estimates for Friday's WASDE suggest no real change in the US story.
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).
On Monday we noted Brazil's Customs Ministry released December corn exports. 3.8 million tonnes shipped out last month was just over the 3.5 estimate from the export association Anec. Their April - November exports were records and +6.6 mt from last year. The December estimate is -0.2, a light change.
Today, Anec updated their personal view of Brazil's January corn exports. Last week they suggested 3.330. That was raised to 3.73. Though it was an increase we'll point out it is still a clearly bullish story. Yes, historically 3.73 in January is a great number. But this now slips to -2.6 from last year. Brazil's amazing heavy export story is now changing. Bulls would suggest their domestic supplies may be getting a little tight.
On Friday USDA reported one bad week of export sales after several wins. Sales of only 367,484 tonnes were reported. To meet USDA’s goal remaining sales need to run +3% vs. the five year average. For 12 weeks sales have shown a great pace at +32% vs. the five year average. Friday's report was a surprise at -54% from average.
Last week StoneX lowered the prior Brazil 1st crop view from 26.45 million tonnes to 25.81. They lowered their prior 97.33 2nd crop view to 96.56. This -1.4 mt cut is not that much. They do not release an official total crop estimate. Though there is concern over this coming 2nd crop corn planting in Brazil it is not yet time to officially hit production numbers. USDA last month left their view unchanged at 129.0 million tonnes. Conab, which already started out with a lower estimate than USDA, lowered theirs from 119.066 to 118.528 in December.
The Buenos Aires Grains Exchange left its Argentine corn production estimate unchanged at 55 million tonnes in its latest monthly report released today. They have not changed this estimate since the first release in September. BAGE reports, "…rainfall will likely continue to replenish soil moisture reserves, and temperatures will remain moderate with a low risk of intense heat, which will improve harvest projections". The Rosario Grains Exchange has not updated its long standing 56 view either. USDA is at 55.0.
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.
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 today. 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 473 3/4 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's remains in a downtrend. Brazil's Center/West region will see two weeks of near-normal rains. Next week may see dryness. Regardless, 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 3/8.
Soybeans
Six of the prior seven trading sessions held convincing bear trade into the day's close. Though soybeans did push to a new low by 2 cents today we'll call it a lightly positive day. The day's ending suggested a light rejection of lower trade. The trade, right or wrong, expects USDA to make minimal adjustments to the US soybean balance sheet on Friday. They are expecting a good revision to USDA's Brazil production estimate.
Since 12/15 there is only one overnight soybean export sale, a small one from 12/19. Chinese buyers have disappeared.
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).
On Monday Brazil's Customs Ministry reported December soybean exports. At 3.8 million tonnes, it was just over the prior 3.5 estimate from the export association Anec. That would put December's exports at +1.9 mt over last year. April - November exports were record at +23.6 from last year. December simply adds to that with now +25.4 from last year.
In the corn comments we noted today's update from Anec suggested a changing export story from here on out. We can't say that is the case yet for soybeans. Today Anec left last week's estimate for January unchanged at 1.3. This sounds like a low number, and it is. But January is normally THE lowest export month. This low 1.3 million tonne estimate is still +0.5 from last year's January.
Today the state crop agency of Brazil's Parana state lowered good ratings from 86% of the crop last week to 71% this week. Parana, one of the two Southern states of interest, is the second largest soybean producer of Brazil. It covers about 15% of all production. The agency suggested that state may miss its 21.7 million tonne production goal if rains do not return next week.
Recent estimates for Brazil's soybean crop here in January range from 151.4 - 158.5 million tonnes. Conab and USDA's numbers from December, only lightly lowered from their starting view, were 160.177 and 161.0 respectively. Allendale expects USDA to lower their view to 158.5 on Friday's coming report. Allendale is only -4% from starting production at 156.5 mt through December. We can now make further, light, declines in production now that we are in a month where weather really matters.
The Buenos Aires Grains Exchange left its Argentine soybean production estimate unchanged at 50 million tonnes in its latest monthly report released today. They have not changed this estimate since the first release in September. BAGE reports, "…rainfall will likely continue to replenish soil moisture reserves, and temperatures will remain moderate with a low risk of intense heat, which will improve harvest projections". BAGE suggests January rains and mild temperatures will be beneficial for the crop.The Rosario Grains Exchange has not updated its long standing 50 view either. USDA is at 48.0.
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.
US soybean sales were quite poor on Thursday's report, -68% from the five year average. This puts a crack in the generally positive soybeans export sales story. Combined with the low shipment numbers, -28% from average over four weeks, there are light questions about USDA's whole-year export estimate. Additionally, Brazil is still cheaper than the US.
The USDA soybean crush report for November showed 200.1 million bushels processed, +5.5% from last year. With 576 million bushels crushed in the first quarter +4.0% from last year, we are curently on USDA's +4.0% whole-year view. Given that we'll have more plants online in the coming months we remain +10 million bushels vs. USDA.
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 again today. Bears would use the daily chart gap at lower prices, 1212 ½ - 12/12 ¾, as the next objective. We'll give bulls a small nod in today's session though. Six of the prior seven days all held selling efforts during the sessions that the market clearly accepted. Though new lows were noted early on the lightly higher trade today the higher close would be seen as the first light rejection of lower trade. 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 1300 ¼. 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: Officially, bears are still in control of soybeans. But perhaps today was the first day where their grip on this market loosened. We may see stability as we wait for USDA's report on Friday as well as the transition back to dryness for Brazil next week. We agree with a lowered soybean price, as Brazil's forecast did change, but suggest perhaps a little too much premium has been removed. For producers we are holding cash beans unhedged...Rich Nelson
Trade Recommendation:
(1/3) Stand aside.
Wheat
Cooler US temperatures ahead, and a strong Egypt buy, supported wheat.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.
The US Plains will see their first winter weather production threat. Revised weather forecasts now show Amarillo, Texas will drop to +1 degree, Oklahoma City, Oklahoma at +1, Garden City, Kansas -8 and Kearney, Nebraska -8. 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 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.
Egypt's state grain buying agency reported a successful purchase of 420,000 tonnes of Russian and Ukrainian wheat for February/March delivery. Egypt was active last month with 480,000 purchased on 12/19, 420,000 on 12/7 and 180,000 on 12/5.
Algeria has tendered for cargoes of durum wheat.
On Friday USDA's weekly report showed 131,601 tonnes of US wheat export sales. To hit USDA's goal we only need to sell -37% vs. average through May. Wheat sales have been quite erratic but over 23 weeks have averaged +5% vs. average. Allendale is +20 million bushels vs. USDA.
Last week a few select US states released their own Crop Progress numbers. This happens once a month during winter. This is separte from the weekly numbers from Washington, DC. The general trend in ratings for hard red winter has improved. From 11/26 to 12/31 Texas has improved from 57% good/excellent to 63%. Oklahoma increased from 56% to 70%. Kansas went up from 35% to 48%. Nebraska changed from 58% to 61%. Soft red areas decreased. Illinois went from 87% to 70% and Kentucky changed from 93% to 85%.
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.