New lowest closes for corn, soybeans and two wheats.

Grains

Brazil's current weather forecast could be called mixed. The Center/West region will see below normal moisture this week. The two week forecast has waffled and is now normal to above normal. The South will see normal to above normal this week but dryness for week two.

A light change to normal/lightly below-normal rains are seen over the next two weeks. After mostly normal conditions in recent weeks this is not a major threat. If anything, the trade is considering light increases to their crop. As a small reminder in years past “normal rains” meant “trend yields”. Since 2014 it would seem as though normal rains mean lightly above trend yields.

Corn

New lows were made again for this long term downtrend. March is now 10 cents away from our minimum downside objective of 430. Today was also a new lowest-close. South America's forecast is only lightly threatening to corn with perhaps a small pushback on intended second crop Brazil plantings. USDA on Friday added to US 2023 production.

This week the Rosario Grains Exchange has upped its view of the coming Argentine corn harvest to now 59 million tonnes. Their grain analyst suggested there was, “…a very good chance” it would eventually exceed 60 mt. USDA on Friday kept their prior 55 mt estimate unchanged.

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.

Supply: The market looked for one message from USDA on Friday. “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.

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.

March Corn Chart: The long term downtrend remains. A new low and lowest close were made. 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 469 1/2 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 3/8.

Soybeans

March soybeans dropped to within 2 cents of the current downtrend low posted on Friday. The close was a new lowest-close. The day's action, selling through the day with a close near the low, implies clear confidence. Chinese economic data, a mixed Brazil forecast rather than drought and USDA's Friday report are concerns.

China's National Bureau of Statistics reported Q4 Gross Domestic Product at 5.2% over last year. Though it was an increase from Q3's 4.9% gain the trade would call this disappointing. It was under the 5.3% expectation. Excluding COVID this is the worst growth for China since 1990. From a numbers basis there is not a good match between their economic activity and how many soybeans they will import each year. Food use does not work in the clean-cut fashion we would expect it to. We would rather focus on the very light and long term liquidation in their hog herd rather than this information. But markets are markets. They will trade this news as bearish psychologically.

Yesterday Reuters newswire reported that four unnamed sources in China estimated the country's Q1 soybean imports at 18.5 million tonnes. This would be -19.5% from one year ago. The trade notes negative hog production margins are issues. We will caution against getting too excited here. This is being compared against Q1 of 2022 which was a strong quarter for imports, itself +13% from Q1 2021. Additionally, that same story ended the commentary by suggesting the country's whole-year imports would still be up 1% to 2%. Whether this is just a one quarter drop in imports or the start of a long period of pushback is not too relevant in the near term. The trade would suggest this would hit the US more than Brazil as it would include the last two months of the seasonal US shipping season, October - February.

A supplier of GMO seed in China, Beijinig Dabeinong Technology, estimates usage of GMO seed will push to 85% of the country within 3 - 5 years. China this year has granted GMO licenses to 26 different firms. The country so far has approved 37 GMO corn varieties and 14 GMO soybean varieties. The perception with this news is that China's weather related yield hits would be muted, just like what has been seen since 2014 here in the US.

A new Brazilian soybean crop estimate was released today. A group we are not familiar with, EarthDay Analytics, lowered its prior 154.4 million tonne view down to 149.2. Three estimates released yesterday were 135.0, 150.1 and 153.4. These estimates came from Aprosoja Brasil, Hedgepoint and AgRural. We do not consider the 135.0 number yesterday, nor the 143.2 mt number from Patria Agronegocious on 1/11 as being realistic at this time. USDA and Conab are at 157.0 and 155.3 respectively.

Tuesday's monthly NOPA crush report was positive. 195.328 million bushels were processed by member plants in December. This was 10.3% over last year's December. For disclosure, last year was an oddly low number itself so the comparison is not clean. Year to date crush is now 5.8% over last year. That is over USDA's whole-year goal of a 4.0% increase. If remaining crush is 4.5% over last year we will exceed USDA's current goal, not changed on Friday, by 20 million bushels. A 5.0% increase the remainder of the year will exceed USDA's current goal by 27 million.

The Rosario Grains Exchange recently upped their Argentine soybean production view to 52 million tonnes. The US ag attache is up to 50.5. USDA on Friday upped their view to 50.

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.

Supply: 2023 soybean production was increased 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.

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. Exports are the hotly debated subject for soybeans. Based only on sales we are ahead of USDA's whole-year goal. Based on shipments and Brazil's price advantage we may be behind. 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.

March Soybean Chart: The chart discussion is where clear bear confidence is seen. New lows for the downtrend were made on Friday. A new lowest close was made today. Today's lower trade also removes one of the small points bulls could have made. After Friday's spike low trade that filled the 1212 ½ - 12/12 ¾ gap prices rebounded. But today's close is not only back at that gap level, it is under. Lows of 1175 ¼ from 6/8 and 1145 ¼ from 5/31 are now the only support levels ahead. Resistance for this downtrend, drawn from highs of 11/21 and 12/28, is 1287 3/4. Bulls can also point to a good sized gap left to the upside, 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: The soybean trade wants to see two things before it is ready to change direction. It wants to see the more cautious crop forecasters drop Brazil's crop to clearly below 150 million tonnes. The current forecast does not confidently suggest that will happen. It also wants to see clear evidence this will translate into Chinese buys from the US here on the tail end of the seasonal US sales season. The most difficult issue to accept in the soybean trade is the market's bear confidence for what is still a moderate yield hit Brazilian forecast. The US crush story is an additional point that the market is not recognizing. The confidence with today's trade, a new lowest close for the downtrend, is extraordinary. For producers we are holding cash beans unhedged...Rich Nelson

Trade Recommendation:

(1/17) Stand aside.

Wheat

KC and Minneapolis wheat pushed to new lows for this two year long term downtrend. The near term forecast has switched from below normal temperatures to above normal. Additionally, above normal moisture is ahead for the Plains.

Some in the trade are suggesting yesterday's likely Algerian wheat purchase may not have been 500,000 - 650,000 tonnes as originally reported. The current discussion is it may have been up to 900,000. This purchase was for milling wheat for April delivery. Origins were said to be French or Black Sea.

Egypt purchased 380,000 tonnes of Russian and French wheat for March delivery.

Yesterday SovEcon estimates Russia's January wheat exports at 3.8 million tonnes. This would be even with last year's December. Russia's exports exceeded prior year levels from July - October. November and December were -0.9 and -0.3 mt from last year respectively. Allendale expects the coming months switch down to below last year.

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.

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.

Wheat Summary: Winter cold snaps are generally not a reliable story for bulls. They rarely mean actual yield hits when summer harvest rolls. Russia's wheat exports in January may not yet fall to below last year levels. We still expect it will. KC and Minneapolis pushed to new downtrend lows. Chicago, our market for “…the lows are likely in” is less than 30 cents from breaking its prior lows. We are not exactly wheat bulls. We can say we are no longer bears...Rich Nelson

Trade Recommendation:

(1/12) Stand aside.

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