KC/Chicago wheat spread returns to normal.

Grains

Brazil's weather forecast continues to hold a more beneficial view. In the Center/West that main state of Mato Grosso will see normal to lightly above normal rains over the next two weeks. Goais sees mostly above normal in week one then normal-below normal for week two. Mato Grosso do Sul, which is not as dry as the first two, will see mostly below-normal. In the South they'll see mostly normal to below-normal. Brazil is not exactly fixed. And this forecast would not suggest a return to trend yields. But a forecast change exactly at the same time as the reproductive phase begins, is a big deal. Don't forget the US 2023 summer as we transitioned from June to July and the price decline. Pay light attention to weather at planting but almost no attention to weather in the vegetative stage. Pay a huge amount of attention to weather at reproduction and just after.

The next two weeks are forecast for mostly normal rains in Argentina. Some areas will see lightly above normal while others will see below normal. 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.

On Friday the 12th 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

Corn made new lows for its long term downtrend yesterday. There was a light gain today, perhaps from a strong ethanol run last week, but nothing that pushes prices near the minor upside gap.

Another positive week of ethanol production was noted with 1.049 million barrels per day for last week's activity. That was 24% over last year. The prior week was also a positive surprise at +15%. These recent weeks have helped the year to date run push to 5.5% over last year. So far we remain ahead of USDA's whole-year corn for ethanol goal at +2.9%. The remainder of the year only needs to run +1.7% from last year. Though we remain ahead of USDA's goal so far we remain lightly concerned. Production has missed this +1.7% goal in 7 of the past 12 weeks. General gasoline demand has run only +0.4% since September. Let's see how this production pace fares as we get past the holidays before saying all is clear.

Weekly export sales will be out tomorrow morning. This covers activity from 12/22 - 12/28. The trade estimate is 500,000 - 1,200,000 tonnes. That would be from -38% to +49% vs. the five year average for that week. Corn export sales are doing fine. To meet USDA's whole-year goal remaining sales need to run -1% from average from now through August. US corn holds a price advantage over Brazil.

On Tuesday USDA reported November corn for ethanol usage at 455 million bushels, +1.0% from one year ago. Due to an oddly strong September the first quarter will wrap up with 1.345 billion bushels of usage, +4.9%. That means the remaining year, to meet USDA's +2.9% goal of 5.325, will have to run +2.2%. We have light concerns about USDA's hope given that only 3 of 11 recent weeks have met that pace.

On Tuesday 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.

In December 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 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 on Wednesday. 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 476 ½ 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: Different than soybeans, you cannot really make moderate or big cuts to Brazil's corn crop. The big 2nd crop hasn't even started planting in any real way. If you're arguing for lower acreage of some sort that is only -1% or -2%. On the yield side you cannot take any large cuts until weather during April is known. That leaves us looking for any changes to the US balance sheet. Though there will be moderate changes to US exports and corn for ethanol we are not going to see anything close to the 400 million bushel change needed to US ending stocks. 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 19, objective 0. Closed 6 5/8.

Soybeans

The beneficial changed Brazilian weather forecast remains. Chinese buyers also continue to hold from the US market. Soybeans made a new low for its downtrend as well as a new lowest close.

Since 12/15 there is only one overnight soybean export sale, a small one from 12/19. Chinese buyers have disappeared.

Weekly export sales will be out tomorrow morning. This covers activity from 12/22 - 12/28. This week should represent a setback in sales for two reasons. 1) We are now past the year's big seasonal sales season. 2) There were zero overnight export sales during this period. The trade estimate is 500,000 - 1,300,000 tonnes. We would suggest that is a bit optimistic at -21% to +105% vs. the five year average for that week. Remember, the prior week's total sales of 983,894 tonnes were made with 132,000 in overnight sales. A more realistic estimate would be 400,000 - 800,000. So far, sales appear great. We remain over the -19% from average level needed from now through August to justify USDA's export estimate. We do have a little caution here as shipments of previously sold product have dropped quickly, Brazil holds its price advantage and the Mississippi River is set to fall again.

Tuesday's USDA soybean crush report for November showed 200.1 million bushels processed, slightly over the 199.7 trade estimate. This number was +5.5% from last year. With 576 million bushels crushed in the first quarter we are +4.0% from last year. USDA's Sep - Aug whole-year goal, 2.300 billion, would be +4.0%. Given that we'll have more plants online in the coming months we remain +10 million bushels vs. USDA.

This week StoneX lowered their 12/1 view of the Brazilian soybean crop, 161.9 million tonnes, sharply to 152.8. They are now the lowest estimate of the trade group. The prior five private estimates were 153.0 - 161.9. Conab and USDA have only lightly lowered their views, 160.177 and 161.0 respectively. 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.

In December 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 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: Soybeans are in a downtrend. New lows and a new lowest close were made today. Bears would use the daily chart gap at much lower prices, 1212 ½ - 12/12 ¾, as the next objective. Until we find support and post a day that rejects lower trade, this is the chart discussion. Bulls could argue for a small move to fill the recent daily chart gap at 1290 ¾ - 1296 ¾. But that would not change anything. The general downtrend line at 1309 ¾ still needs to be taken out. A move past that 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 soybean market pushed below those important October lows and remains below them. There is market acceptance of lower prices despite this upside chart gap left two days ago. While we agree that some lower pricing was needed, given that Brazil's forecast has changed for the reproductive period, it is surprising to see that all risk has been removed. We also don't like how the chart shows active and matured trading 1290 - 1430 but has a big open zone to fill in here under 1290. For producers we are holding cash beans unhedged...Rich Nelson

Trade Recommendation:

(1/3) Stand aside.

Wheat

Another push to lower trade was seen in the morning session. That would have made it three days of clearly lower trade. The afternoon close, to higher prices, was the first light rejection of lower trade. Though many could argue the general low from this long term downtrend are in place, it is tougher to suggest it is time to rally though. US weather forecasts remain beneficial.

Though US wheat prices have found a bottom in this long term downtrend they are not rallying much off that low. The big movement remains with the Chicago/KC wheat spread. Concerns over dryness in the Plains over the past two seasons helped push hard red prices far above soft red. With the changed forecast for the Plains vs. the Eastern Cornbelt that situation has changed. For the July vs. July contracts the KC premium, once 182 cents, prices are now back to normal.

Normal to above normal moisture is seen for the US Plains over the next two weeks. Updated today, the Eastern Cornbelt's soft red region now moves to above normal as well. For the Plains the next precipitation run, late this week, will brin 0.25 - 1.00 inch of water equivalent to all of the hard red areas. It will be Eastern focused in the Plains where heavier amounts will run 1.50.

Egypt's agriculture minister reported wheat planting to date at 3.062 million acres. That is up 0.5 from last year.

US wheat export sales, much more than corn or soybeans, generally see low interest during Christmas week. The trade's 150,000 - 450,000 tonne estimate for tomorrow's weekly report would be oddly large at +29% to +286% vs. the five year average for that week. Trade estimates are likely just plain wrong.

Tuesday afternoon a few select US states release their own Crop Progress numbers 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%.

In December 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. 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.