Grains start the week mixed

Grains

Brazil's weather will hold more importance as we get into reproduction for the soybean crop and 1st crop of corn in January/February. There is no real change in the forecast ahead from current conditions. This fits in with Drew's latest long term forecast released back on December 1. For week one ahead clearly below normal rains area seen for the dry Center/West. Week two is normal to lightly below normal for that region. Allendale is assuming some level of lightly below trend yields for this region. For the wet South the next two weeks may bring a little relief, lightly below normal rains.

Drew Lerner released a report today titled, “Argentina Will Again Receive Significant Rainfall This Week”. He estimates the coming Friday - Monday forecast rains will run 0.75 - 4.00 inches. We'll bounce from above normal rains in the next four days to normal after. We have zero concern with Argentine yields at this time. As a reminder, strong El Nino years like this generally bring above-normal moisture and above trend yields. If we see above normal rains consistently we will up our forecast.

Corn

The March posted its fourth lowest close of this general downtrend. Today's close is 6 ½ cents away from the most recent downtrend low, 470 ½. Argentina saw normal to above-normal rains last week. Another good system will come this weekend.

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%.

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".

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.

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.

The Buenos Aires Grains Exchange estimates 49.3% of corn planting is complete.

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 net effect, when Argentina has grain to export, is bearish for the US. 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 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. 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. Main support is the main low from 11/29, 470 ½.

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. 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 12 3/4.

Soybeans

Though gains today would be considered moderate the close is the best in five sessions. March is nearing a test of this recent downtrend, 1344 ¼ tomorrow. Brazil concerns are lightly growing. The smaller Argentine crop looks great so far.

There were no overnight export sales reported today. Last week's total was the best in four weeks.

Last week Argentina devalued the peso against the US dollar by more than 50%. Today 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%.

US soybean export sales over four weeks were +19% vs. the five year average. To hit USDA's whole-year goal the remainder of the year only needs to run -15%. However, shipments of previously ordered soybeans in the recent four weeks are -31% vs. the five year average. To hit USDA's goal the remainder of the year needs to improve to -13%. Sales, recently at least, are great. But the trade is not confident this recent pace will last. Brazil still has a price advantage. Second, shipments are behind. Given the US river system it is hard to expect a change.

AgRural estimated Brazil soybean planting 94% complete. It was complete last year at this time.

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 soybean production, in the Northern region, would fall to under 5%.

Last week USDA lowered their Brazil soybean production view from 163.0 to 161.0. Conab lowered their prior 162.42 view to 160.77. Bulls would be disappointed by the lack of serious declines so far. We have no problem with these minimal declines though. They are completely reasonable given that yields are not really determined by weather during the vegetative growth stage. Weather specifically during the reproductive phase, January/early-February, is the key yield determinant. Allendale's current worst case scenario has only been -4% so far, 156.5. Yes, we do expect that number to decline. But we can't do it until we see next month's weather show.

The Buenos Aires Grains Exchange estimates 59.5% of soybean planting is complete. More than 90% was rated normal to good.

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

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. 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 multi-month trend for soybeans is sideways. There is a three week downtrend still in place. That will be tested at 1344 ¼. Support on the chart is at two places, the recent 12/7 low of 1311 ¾ and the 10/11 major low at 1282 ½. Bulls would like to discuss a move to at least the intraday gap left from 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: Let's get the upside intraday gap filled. Beyond that point we wonder if we'll have to wait for January before seeing this discussion of 1400. There are still a lot of ups and downs ahead as we near the very important January weather window for Brazil. If the forecast turns back to normal precipitation then you can validly remove all risk premium. 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 23 3/4.

Wheat

Wheat ended the week lower. Chicago's loss was minimal vs. KC. Chinese buyers have favored soft red. The two week weather forecast has turned beneficial for the US Plains with above normal moisture.

The current one and two week US Plains weather forecast is normal to above normal moisture. It appears as though the Climate Prediction Center's call for above normal moisture in December - February is coming true.

Saudi Arabia's wheat purchase, which last week tendered for 715,000 tonnes of milling product, ended with a large 1.353 million tonne actual purchase. In their prior 11/6 purchase the total was said to be 710,000.

The Buenos Aires Grains Exchange kept its view of the active Argentine wheat harvest at 14.7 million tonnes. They estimate harvest at 55% complete. USDA is at 15.0. Last week the Rosario Grains Exchange bumped theirs up to 14.5. The last leg of harvest has seen better than expected yields.

China now has 2.2 million tonnes of US wheat procured. Their total imports will run 10 - 12 mt for the year. This 2.2 pace is the third best of the past 15 years.

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%.

USDA recently lowered US ending stocks for this old crop 2023/24 marketing year by 25 million bushels to now 659. This is reasonable given recent China buys.

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 last week 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:

(11/17) Stand aside.