Positive corn and wheat export sales reported.

Grains

The Federal Reserve policy making board ended its last meeting of 2023 with no change in short term rates. That was the trade expectation. The focus for the trade today was on plans for 2024. 17 of 19 voting members of the Federal Open Market Committee expected lower interest rates by the end of 2024. The expectation is the current policy of 5.25% - 5.50% short term interest rates is expected to drop by -0.75% over three separate declines in 2024. The general financial trade will view this as a confirmation of the current view of a “soft landing”.

As we inch closer to that all-important January/February weather window for Brazil's soybean and 1st crop corn yield determination period 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. Next week 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.

The forecast for this week's Argentine rains remains. Tuesday - Monday total rains will run 1.5 - 4.0 inches. Next week will see normal to very lightly below normal for these three areas. 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

In a day with relatively low trading interest, March futures posted an Inside Day. Weekly US corn export sales were great, as expected. Argentina will see above-normal rains for the period through Monday.

The US holds a significant pricing advantage with corn export bids over Brazil, $0.78 to $0.41 per bushel.

Weekly export sales today cover Fri 12/1 – Thu 12/7 activity. Sales of 1,418,637 tonnes were reported. The trade estimate was 800,000 – 1,600,000. This was the best sale for this week in seven years. USDA’s current 2.100 billion bushel goal for the year would be -2% from the five year average pace. Our year to date sales are -2% from average. To meet USDA’s goal remaining sales need to run -2% with vs. the five year average. For 11 weeks sales have shown a great pace at +43% vs. the five year average. This week, within that 11 week analysis, was also +43%. US export prices have an advantage over BZL. If sales run even with last year through August we'll beat USDA's current goal by 25 million bushels. A +10% pace pushes that to 125. A 20% pace would increase to 226 over. Allendale is +50 million bushels vs. USDA's whole-year goal.

Reuters newswire claims government sources have told them the Biden administration will agree to the methology favored by the ethanol industry when establishing Sustainable Aviation issues. As you know, most current studies suggest ethanol is 40% less carbon intensive then regular gasoline. The industry suggests that benefit will do nothing but increase in the years ahead. There our other studies out there, which use questionable methods, to suggest it is not as beneficial. The ethanol industry feels SAF is the next avenue to hold US usage stable or even post increases in the coming years. Without it, declining annual gasoline usage in the years ahead would mean lower needs for ethanol. Unlike many in US agriculture Allendale is a bit more cautious in SAF hopes.

Yesterday Argentina devalued the peso against the US dollar by more than 50%. Today grain industry sources suggested the government wants to raise the current 12% corn import tariff to 15%. The net change between these two moves would still be quite beneficial to Argentine agriculture. They would be quite a bit more competitve against Brazil and the US when they have grain in hand.

Yesterday's weekly ethanol usage, +1.2% year/year for last week's activity, was better than prior weeks. It is still under the general +2.1% pace that is needed to meet USDA's whole-year hopes. If the remainder of the year runs +1.0% we'll miss USDA's goal by 97 million bushels. If they run even with last year the miss will be 149. Allendale currently has a miss of 25 on our books.

The chief executive of Brazilian seed supplier, Boa Safria Sementes, suggested corn seed for second crop planting which starts in January may be in tighter supply than expected. No specific numbers were discussed for corn. Allendale still feels comfortable with at most a 2% hit to acreage. If you want to get bullish US soybean prices acreage is not your story, yield is. The yield story will be determined by weather specifically in January and early February.

For Brazil's crop USDA left their view from November,129.0 million tonnes, unchanged last week. Conab last week lowered theirs from 119.066 to 118.528. They have both been at odds with corn estimates for some time. Heck, they're even a bit off from each other for the completed 2023 harvest numbers. But the general message is still the same. No one is really lowering their starting estimates much. Over the past 30 days the private trade is 119.3 - 128.7 depending on which government number they were starting from. We do not view the 112.51 guess from Patria Agronegocious on 11/30 as realistic.

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 lowered US ending stocks by 25 million bushels to now 2.131 billion. Only an adjustment for exports was noted. While there will be further export estimate increases ahead Allendale warns they may be countered by for ethanol decreases. 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. There is still a minor upside intraday gap that should be filled in the coming days, the 12/12 close of 485 ¼. 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 14 7/8.

Soybean

A trading range tucked within yesterday posted an Inside Day. This day of indecision came with neutral weekly export sales but a big overnight sale reported this morning. Argentina will not increase export tariffs for soybeans. The trade is monitoring active Argentine rains through Monday.

Unknown buyers procured 400,000 tonnes of US soybeans overnight. This marks seven business days in a row with overnight sales. This specific week's Monday - Thursday sales now total 855,000 tonnes. This is the best week of overnight sales in five weeks. Separate from any sale tomorrow morning, which applies to this Friday - Thursday export sales week, next Thursday's weekly report will be a strong 1.4 - 1.8 million tonnes.

There has been little change in US/BZL soybean export pricing. Brazil holds a moderate short term advantage and a significant advantage for extended delivery, $0.57 to $1.09 per bushel.

The Mississippi River at St. Louis is currently -1.3 feet stage height. The forecast suggests a decline to -4.1 by the 27th. This is not as bad as the -5.0 forecast noted last week. The 2012 drought year low saw St. Louis at -4.4.

Weekly export sales were released this morning. Sales of 1,084,001 tonnes were reported for soybeans. The trade estimate was 900,000 – 1,800,000.  

USDA’s 1.755 billion bushel soybean export estimate is -11% from the five year average sale. Year to date sales are currently -8% from average. To meet USDA’s goal the remaining weeks through August need to run -15% from average. This week's sale was -4% from the five year average. Brazil’s clear price advantage remains. Allendale is +10 million bushels over USDA's whole-year view. We would increase this further if we did not have the Brazilian pricing and Mississippi River issues.

Yesterday Argentina devalued the peso against the US dollar by more than 50%. Today grain industry sources suggested the government will not be seeking any increases to soybean, soymeal or soyoil export tariffs.

The chief executive of Brazilian seed supplier, Boa Safria Sementes, suggested soybean seed for replanting was in tight supply. He suggested 10% - 15% of farms in Northern areas needed to replant this year. To be clear, he did not say total soybean acreage would decline by 10% - 15%. He said 10 - 15% of farms in those specific areas needed replanting. Allendale still feels comfortable with at most a 2% hit to acreage. If you want to get bullish US soybean prices acreage is not your story, yield is. The yield story will be determined by weather specifically in January and early February.

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.

USDA recently left their US ending stock forecast unchanged at 245. Domestic crush is a little behind their whole-year goal. Export sales, at least in the recent four weeks are quite strong. USDA is holding from export increases as Brazil still holds a better export price as the Mississippi/Panama Canal dryness issues remain. 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.

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.

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. Yesterday's trade filled a small downside gap to 1323. Current prices are over that mark. 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 26 3/8.

Wheat

Positive weekly export sales were released today in the weekly FAS report. This was expected though. Much of the trade is noting this week will see a moisture recharge in the Plains. The forecast for the next two weeks is also holding above normal moisture.

USDA reported 1,490,470 tonnes for last week’s wheat export sales. The trade estimate was 1,200,000 – 1,600,000. This is the best sale for this specific week in 32 years. This sale was expected given the reported overnight sales to China of 1,120,000. USDA’s 725 million bushel export goal, for the year that started June 1, is -19% from the five year average sale. Year to date sales are -13% from average. To hit USDA's goal we only need to sell -36% vs. average through May. Wheat sales have been quite erratic. Over 20 weeks through the run is +9% vs. average. This week, within that 20 week count, was +162% vs. average. Allendale is +20 million bushels vs. USDA.

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.

Yesterday Argentina devalued the peso against the US dollar by more than 50%. Today grain industry sources suggested the government wants to raise the current 12% wheat import tariff to 15%. The net change between these two moves would still be quite beneficial to Argentine agriculture.

Saudi Arabia's state grain buyer has tendered for 715,000 tonnes of milling wheat for February - May delivery. In their prior 11/6 purchase the total was said to be 710,000.

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.