New corn and soybean lows. US production raised. South America declines were minimal.

Grains

USDA issued four separate reports today. The Annual Production Summary revised the prior view of the 2023 fall US corn and soybean harvest. The quarterly Grain Stocks report released a count of old crop as of December 1. For corn and soybeans this represents old crop after one quarter of usage. For wheat it is a midyear old crop count. The third report is the routine monthly World Agricultural Supply Demand Estimates. This shows the balance sheets with new production and demand numbers and changes for their ending stock view. This report also shows world numbers. The fourth report is the annual Winter Wheat & Canola Seedings. This is USDA’s first new crop report. It covers a survey of producers for fall winter wheat plantings.

Brazil's forecast is mostly normal rains for the next seven days with some areas lightly below normal. The two week update shows normal to below normal for all.

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.

Corn

The trade was hoping for some type of change to the general well-supplied story for US corn. Instead, USDA found this last fall's harvest was larger and their South American production decline was relatively muted. New lows for the long term downtrend were made.

Supply: The market looked for one message from USDA on corn in today’s series of reports. “Is there anything here which disrupts the narrative of heavy US supplies”? The answer they received was that heavy US supplies just got moderately worse. USDA’s prior 2023 corn production estimate was raised by 108 million bushels today to now 15.342 billion. The trade estimate was for a minimal decline to 15.226 (ALDL 15.203). We already had a record US production in 2023. It was moderately increased. Yields were jumped 1.4% on this report, from 174.9 bpa last month to 177.3. This is now a new record yield, now exceeding the 2021 peak of 176.7. This 1.4% increase from the November yield estimate is tied for the second largest jump of the past 20 years. A light offset was the -0.6 million acre revision for harvested acreage, now 86.5.

Dec 1 Old Crop: Old crop stocks left over as of December 1 were showed at 12.169 billion bushels, lightly over the 12.050 trade estimate. Considering the higher production change than the private trade, this is within reason.

Demand and Stocks: When including a minimal change to the long completed 2022/23 year, the 2023/24 US balance sheet started out with 106 million more bushels than last month. USDA offset this partially, +25 million bushels for feed/residual and +50 for corn for ethanol. The recent, surprising, strength in ethanol production over the prior four weeks makes this move within reason. Exports were the area most of the trade was monitoring on this report. USDA chose not to make any changes from last month which may be a warning. US corn export sales are great. To meet their prior whole-year goal remaining sales only need to run even with the five year average. The past 15 weeks were quite strong at +26%. These changes helped push the US ending stock estimate up by 31 million bushels to 2.162 billion. The trade estimate was 2.105 (ALDL 2.075). The problem with corn is this long and slow downtrend has still to price in 1.9, 2.0 or even 2.1 billion bushels. Here we are now at 2.162. All of these stock numbers imply sub-$4.10 futures. Allendale’s current conservative downside estimate is $4.30. This downside estimate is likely a bit too conservative. Bottom line for today, there is no change in the well-supplied US corn story.

World: World corn ending stocks were raised by a stout 10 million tonnes today, now 325.22. This was a China story with USDA’s prior 277.0 mt production estimate jumped to 288.8. They are now inline with the Chinese government’s 288.8 view. Brazil’s crop was lowered by 2 mt today, now 127.0. This was shot of the trade estimate’s view of a decline to 125.2 (ALDL 128.0). They left Argentina’s 55 mt crop view unchanged from last month. The Rosario Grains Exchange this week raised theirs to 56.

This week 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.

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.

March Corn Chart: The long term downtrend remains. New lows and lowest close were made today. There is an upside intraday gap at the 12/29 close of 471 ¼ but that is not in the short term discussion. The downtrend remains in place until resistance at 471 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 remains in a downtrend. So far, we don't have a story which disrupts the US supply narrative. We suspect our 430 downside target for futures may not be low enough. For producers we continue to hold hedges...Rich Nelson

Working Trade:

(11/30) Sold March 480 call 15, risk 19, objective 0. Closed 1 5/8.

Soybeans

Soybeans were disappointed that USDA revised the fall US harvest higher, did not offset it with any higher crush or export changes and also made relatively muted declines for South American production. Chart action today did show new lows and a new lowest close for this downtrend. At one point March was -33 ½ cents for the day and it filled the downside chart gap. After the gap fill a good rebound to only -12 cents for the close was noted.

Supply: 2023 soybean production was increased on today’s report by 36 million bushels, now 4.165. The trade expectation was for a minimal decline to 4.134 (ALDL 4.118). Soybeans, different than corn, don’t have a record production. This is still the smallest production in four years and smallest total supply in eight years (beginning stocks). Yields were revised from 49.9 bpa to 50.6. That may not sound like much but this 1.4% increase is tied for the second largest increase in January in 20 years. There was a light offset from -0.4 million acres off their harvested estimate.

Dec 1 Old Crop: The December 1 count of old crop soybeans found 3.000 billion bushels. Given the higher production than the trade was looking for their 2.975 pre-report estimate was reasonable (ALDL 2.956).

Demand and Stocks: When including a minor change to beginning stocks from the long completed 2022/23 crop year, USDA started this month’s balance sheet with 31 million more bushels than last month. The bigger surprise was their lack of interest in adjusting demand by any real amount. Residual use was lowered by 3 million. The easiest call to make was that domestic crush should have been increased. Production over the Sep – Nov period was 4.0% over last year. USDA’s current, unchanged, goal for the whole-year is a 4.0% increase. Given more plants coming online in the coming months this category is likely 10 to 20 million bushels too low. Additional support comes for this view with Tuesday’s NOPA crush estimate for December suggesting a 9% increase over last year. Exports are the hotly debated subject for soybeans. Based only on sales, USDA would be viewed as too low. Remaining year sales could fall to -18% from the five year average to meet USDA’s current view. The prior 13 weeks, though with big week to week gyrations, averaged 24% over last year. But the export story is not clean-cut. Shipments over the past 9 weeks have been terrible, -29% from average. To meet USDA’s whole-year goal this must run at least -8%. Additionally, the US price disadvantage to Brazil remains. USDA chose to leave their estimate unchanged. With a moderate supply increase and a minor demand decline USDA’s ending stock view was raised by 35 million bushels to 280. The trade estimate was 243 (ALDL 232). We compute a 200 ending stock as implying $14.00, 250 stock at $12.95 and 300 at $12.20. In our view, soybeans are at economic value. We will note there is still considerable movement still ahead on this balance sheet.

World: World ending stocks were minimally increased on today’s report, 0.4 million tonnes to 114.6. USDA raised the small Chinese crop by 0.3 mt on today’s report to 20.8. The Chinese government is at 20.8. Brazilian production was lowered by 4 to now 157. The trade estimate was 156.0 (ALDL 156.5 personal, 158.5 expected for USDA). Conab's estimate for Brazil this week was 155.269. The Argentine soybean production view was raised by 2 mt to now 50.0. The Rosario Grains Exchange this week upped their view to 52. The US ag attache is up to 50.5.

This week 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.

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.

March Soybean Chart: Bears are still in clear control of the soybean market. New lows and a lowest close were made today. We will give bulls two points here. Today's sharply lower trade filled that downside gap at 1212 ½ - 12/12 ¾. After the close it rebounded a bit off that low (positive). Also, the close itself, -12 cents for the day, was much better than the morning lows of -33 ½ cents. The rebound was impressive but we cannot argue a major low was made. Resistance for this downtrend is at 1291 for Tuesday. That needs to be broken to fill the upside daily chart gap at 1290 ¾ - 1296 ¾. Past that there is another gap at the 11/22 close, 1374 ¼.

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: Our pricing model suggested today's spike low trade at one point priced in 300 US ending stocks. Perhaps we went a little too far down. The strong rebound off the morning lows was impressive and we would like to call a major low of some sort but we just cannot do that. If the Brazilian weather forecast went back to solidly below normal rains for the rest of this month we would feel more confident about that. For producers we are holding cash beans unhedged...Rich Nelson

Trade Recommendation:

(1/3) Stand aside.

Wheat

Wheat traded mixed with KC up while the others were lower. USDA's report did not make major changes to the 2023/24 crop balance sheet for wheat. Bears could say wheat's relationship with corn is where the report could be called negative. But the new crop discussion got a light kick start with the 2.2 million acre decline implied for this past fall's US planting.

Dec 1 Old Crop: As usual, there were no changes to the 2023 US wheat harvest. The last time they did that in January was 2007. The December 1 count of old crop was found to be 1.410 billion. This represents old crop left over after six months of usage. This was just over the 1.387 trade estimate (ALDL 1.386).

Demand and Stocks: USDA’s 2023/24 balance sheet started off with 12 million fewer bushels than it did last month. USDA revised the long completed 2022/23 crop year. On the demand side only a 1 million bushel decline was noted for seed usage. No changes were made to their prior 970 whole-year export view. You could argue this category should have been raised. To meet this view the remainder of the year can see future sales fall to -35% from the five year average pace. The prior 24 weeks of sales were active at +2% vs. average. Ending stocks, what will be left over at the end of the marketing year on May 31, were lowered from 659 to 648 million. US wheat prices are not traded with the US balance sheet.

World: World wheat ending stocks were lowered from 258.2 million tonnes to 260.0. Russian production was raised by 1 mt to 91. Ukraine was upped by 0.9 to 23.4.

Fall 2023 US Plantings: The first new crop report of the year was released by USDA today. Fall 2023 winter wheat plantings, for the summer 2024 harvest, were estimated at only 34.425 million acres. This 2.2 million decline was under the 35.786 trade estimate (ALDL 37.287). Declines were noted for hard red at -1.7, soft red -0.5 and white -0.1.

Forecasts suggests this weekend's low temperatures in the Plains will run +3 in Amarillo, Texas, +3 in Oklahoma City, Oklahoma, -13 for Garden City, Kansas and -13 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.

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:

(1/12) Stand aside.