New lows again for corn, beans and two wheats.

Grains

Brazil's current weather forecast could be called mixed. The Center/West region will see normal to below-normal moisture over the next seven days. The two week forecast suggests normal to above-normal. The South will see mixed weather over the next seven days then below normal over the second week period. While we certainly agree with the view of yields running below trend, and yes further declines ahead for USDA's estimate, this is not a threatening forecast. As a reminder, weather/yield analysis really minimizes concerns that may be seen during the vegetative stage. Weather right now, during the reproductive stage for the extreme majority of their crop, is the prime determinant.

Argentina is set for normal to below-normal precipitation over the first week then normal for the second week. After mostly normal conditions in recent weeks this is not a major threat. On an additional bearish note Argentina's peso has now expanded to 1,250 pesos per US dollar. This is far over the current government official rate of 819. To put this into context the official exchange rate was 37 pesos to the US dollar at the start of 2019. When Argentina does have a crop to export they will be highly competitive on price.

Corn

Another new low for this long term downtrend was made before a light rebound into the close. March came within 6 ¾ cents of reaching Allendale's minimum downside view of 430. Ethanol production was positive today.

Low corn prices and stable ethanol prices have enabled a bump in ethanol plant activity. Weekly production covering the second week of January was released today. At 1.054 million barrels per day it was +4.6% from one year ago. This marks five weeks in a row of much better than expected production rates. USDA's current corn for ethanol goal, 5.375 billion bushels, would be +3.8% from one year ago. Including last week's activity our year to date run is +5.8%. To meet USDA's goal the remainder of the year only needs to run +1.0%. We have met this goal in each of the past six weeks. Here's one small note of caution, we don't have a +4.6% increase in general gasoline demand. Even with the EPA's likely opening of summer e15 sales for select Midwestern states we don't need this jump in production. That may be shown by the stock numbers. In the first week of December ethanol stocks were -9.5% from one year ago. Currently, they are +9.8%. Corn for ethanol is ahead of USDA's hopes but let's reign in our hopes here.

USDA's weekly export sales report will be out tomorrow. This covers activity from Friday 1/5 - Thursday 1/11. In general, US corn export sales have been doing just fine. It is true that a year to date analyst would suggest we are behind. Sales through 1/4 are -4% from the five year average, under USDA's current whole-year hope of only -2%. But sales over the past 15 weeks have been great at +26% from average. The question is about the pace in the weeks ahead. For tomorrow the trade expects to see 500,000 - 1,200,000 tonnes for US corn sales during this time. That would be from -37% to +52% vs. average for that week. Either way, this report is not a major market mover. So far we don't have the 300 - 500 million bushel change needed to US ending stocks to change the US corn pricing story.

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 to now 15.342 billion. 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.

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. These changes helped push the US ending stock estimate up by 31 million bushels to 2.162 billion. The problem with corn is this long and slow downtrend has not yet priced in these heavy stock levels. Anything over a 1.8 stock implies sub-$4.10 futures. Allendale’s current conservative downside estimate is $4.30. This downside estimate is likely a bit too conservative.

March Corn Chart: The long term downtrend remains. A new low was 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 468 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 lightly dipped to another new low for this long term downtrend. 1201 lows today were just 1 cent from psychological 1200 support. The trade is frustrated that Brazil's forecast is not back to clear hot and dry. Additional concerns remain over US exports. So far, this is offsetting supportive US crush data.

Agroconsult, one of the known research firms in Brazil, lowered their 11/22 Brazil soybean production estimate down from 161.6 million tonnes to 153.8. This comes ahead of their planned crop tour of the main production state, Mato Grosso. This estimate is not market moving. It fits in with the general trade discussion. Aside from two oddball estimates the trade in the month of January is from 149.2 - 158.5. USDA and Conab are at 157.0 and 155.3 respectively. At this time the trade is not seeing production declines at a level enough to support prices.

USDA's weekly export sales report will be out tomorrow. This covers activity from Friday 1/5 - Thursday 1/11. Soybean exports are the main demand category that is most in question among the entire grain complex. The year's big seasonal sales period is now over. This is the time for Brazil to take up the reigns. The positive is, based on sales at least, we are ahead of USDA's hope. Year to date sales are -8% from the five year average. USDA's whole-year goal is -11%. The trade expects to see 400,000 - 900,000 tonnes for US soybean export sales. There were no overnight sales for this period of time. We would suggest, like with last week's discussion, the high end of this estimate range is simply not realistic. For tomorrow this range of estimates would be from -51% +11% vs. average.

Despite the fact US soybean export “sales” are still ahead of USDA's goal we are highly uncertain on the year's total. Over the prior nine weeks “shipments” of previously sold soybeans are -29% from the five year average. Also, Brazil's long-standing price advantage vs. the US still remains. It not just remains but has actually widened, now a large $52 per metric tonne ($1.40 per bushel).

Reuters newswire conducted a survey of 18 analysts on their 2024 palm oil price views. The consensus was 3,950 ringgit per tonne. That would be lightly over current 3,885 prices for the closely followed third-month out futures contract. Their supportive hopes rest on the implementation of Indonesia's B35 biodiesel mandate which they expect to reduce the top producer's exports by 4%.

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. 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.

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. With a moderate supply increase and a minor demand decline USDA’s ending stock view was raised by 35 million bushels to 280. 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 today. The trade yesterday and today are concerns as we are back on the prior filled downside gap, 1212 ½ - 12/12 ¾. 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 1284 1/2. 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: While we would argue this market is a little undervalued, and we have so for the past three weeks, we cannot suggest it is ready to change. The market itself, via strong confidence with lower trade, is showing its own belief. The market is disappointed we don't have a Brazil forecast of hot and dry and that production forecasts still are now yet below 150 million tonnes. We are not yet ready to pick a bottom for speculative trading. 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 again for this two year long term downtrend. Bears note the updated US weather forecast for winter is bearish hard red winter wheat. The trade is not yet ready to suggest the Red Sea issues are enough to stop this bear move.

We've been reluctant to get excited about the Red Sea issues. Now that the trade is noticing it we'll lightly cover the topic. The World Trade Organization today suggested first half January wheat exports through the Suez Canal are -40% from last year. Ukraine, which does ship wheat to African countries, may seen total exports in January at -20%.

The US Climate Prediction Center released the month update to the long term US weather forecast. The one-month out forecast, covering only February, calls for normal temperatures from Texas through Kansas and above normal for Nebraska. Precipitation is seen as normal for the Plains. The three month forecast, February - April, shows temperatures mostly normal. Parts of Texas would be seen with below normal. Precipitation during this time is seen as above normal for Oklahoma through Nebraska and neutral/above for Texas. This would be a bearish forecast for KC wheat pricing.

Over in US soft red territory, the Eastern Cornbelt and Ohio River Valley, the temperature forecast for February is mostly normal. The Northern reaches of Illinois and Indiana, not major winter wheat areas, are seen with above normal. Important for the discussion the precipitation forecast is below normal for all areas. The three month out forecast is also a little threatening with above normal temperatures and below normal precipitation. This would be a bullish forecast for Chicago wheat pricing.

Weekly export sales tomorrow are expected 150,000 - 500,000 tonnes for US wheat. There's still a bit of confusion for this highly volatile demand category for wheat. Going into this report year to date sales of -15% from the five year average are ahead of USDA's whole-year goal of -19%. To hit USDA's low goal the remainder of the year, seasonally a low period of sales, needs to see -35% from average. That should be an easy goal. We will point out the range of estimates for tomorrow would be low at -70% to +1% from average.

We thought any talks on renewing the old Ukraine grain export deal were long over. This morning we see Ukraine's ambassador to Turkey suggest that “certain negotiations” for a UN sponsored deal were starting. The deal expired in July of 2023. As Ukraine has been shipping regardless of a deal we don't see this as a market moving issue.

Fall 2023 US Plantings: The first new crop report of the year was released by USDA last week. 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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