Positive ethanol production fails to support corn.

Grains

Friday hold a normal close for grain and livestock markets. There will be no Sunday night grain trade, Monday day session nor Monday night trade. After Friday's close the next session for grain or livestock is Tuesday at 8:30 am Central. Have a safe and happy New Year celebration.

Brazil's weather issues are not fixed. They are simply not as a bad what they were seeing one month ago. The two week forecast for the Center/West regions has bounced around a bit in recent days, from normal-lightly above normal to normal-lightly below. The South will see a mixed pattern.

Argentina has been set for trend yields with generally normal rains recently. The general two week forecast is mostly normal rains with some areas seeing above normal. We're still quite cognizant of the fact a normal El Nino pattern is for above normal rains and above normal yields.

Corn

Corn ended the day lightly lower. This came despite a little premium back in for wheat via Black Sea tensions and a positive weekly ethanol production report.

The EIA's weekly ethanol numbers this morning were a bit of a surprise. Last week's production run was 1.107 million barrels per day. This was the best run in over two years, October 29, 2021! This is a bit of a surprise as typically we are past the seasonal production peak. This strong production week was +15.0% vs. last year. The prior week was also strong at +4.1%. These two weeks help ease some of the concern from the prior nine weeks. Our year to date pace is strong at +4.7%. USDA's whole-year goal is +2.9%. This means the remainder of the year needs to run +2.1%. We still hold our general concern regarding corn for ethanol. Only two of the past 11 weeks have met this general +2.1% needed goal. Additionally, general gasoline demand remains quiet. Year to date demand is +0.1%. Last week's demand, the week before Christmas, was -1.7%.

Corn export sales have been phenomenal for some time. There was a period lasting 11 weeks which ran +43% vs. the five year average sales pace. Then we had last week's report which was one downer at -41% from average. For now, we'll call that week an anomaly. With year to date corn sales at 1.109 billion bushels, we have sold -4% from the five year average. That's lightly positive considering USDA's whole-year goal is -2% from average. We only need remaining sales to run close to average from here on out.

Weekly export sales, covering Friday 12/15 - Thursday 12/21 activity, will be out tomorrow morning. Will we go back to the prior extraordinary pace of +43% vs. average or repeat last week? The trade estimate for tomorrow, 600,000 - 1,400,000 tonnes, is -35% to +52% vs. the five year average for that week.

Though there is concern over this coming 2nd crop corn planting in Brazil it is not yet time to officially hit production numbers. USDA this month left their total corn production view unchanged from last at 129.0 million tonnes. Conab, which already started out with a lower estimate than USDA, lowered theirs from 119.066 to 118.528.

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 oversupplied US 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 and lowest close were made last week for this downtrend. 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 a sharp downtrend line from October and December highs that crosses tomorrow at 480. We would hesitate to say that a violation of that line means a transition to an uptrend.

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: Despite lightly positive news today, corn remained weak. We do expect light corn production losses out of Brazil but that would mainly be light acreage shifts. It is still months before you can say significant yield issues. Our general discussion of 430 futures for a target remains...Rich Nelson

Working Trade:

(11/30) Sold March 480 call 15, 12/28 move risk to 21, objective 0. Closed 9 3/4.

Soybeans

Soybeans tested the downtrend line of the past five weeks and failed today. Brazil will likely see further production declines in the coming months but the short term forecast is not as bad as previous. Additionally, Chinese buyers have shown minimal interest recently.

Day three of the work week came with still no overnight sales. There were only one last week totaling 132,000 tonnes. In the first 15 days of December there were 11 reported overnight soybean export sales. There is a clear change in China/Unknown interest.

Tomorrow's weekly export sales report, delayed by one day due to the holiday, is expected to show 800,000 - 1,700,000 tonnes in total soybean sales for the Friday 12/15 - Thursday 12/21 period. Technically, there were two overnight sales on the 15th but these are usually grouped in with the prior week that ended the day before. That would leave us with only one overnight sale during this period of 132,000. This would normally imply a total sales range of 400,000 - 1,000,000. We suspect the trade's estimate range may be optimistic.

The season for big soybean export sales is now over. We usually run over 1,000,000 tonnes in weekly sales September through the third week of December. On a seasonal basis, tomorrow's report is usually the last of this big period. From here on out weekly sales run 500,000 - 1,000,000 through March then drop further. That's not bad. It is simply normal. We'll put a positive spin on this with noting we are ending our big sales season with a bang. 1.299 billion bushels have been sold as of 12/14. That is -8% from the 1.407 five year average pace. To hit USDA's goal for the year, 1.755 billion or -11% from average, we only need to sell -18% from average for the rest of the year. The trade's estimate range for tomorrow, 800,000 - 1,700,000 tonnes, would be -16% to +78% from the 952,493 five year average sale usually sold in this week. In other words, based on sales so far USDA is just fine. You could even argue they may be a little low. We are onboard with that belief as we are +10 million bushels over USDA's whole-year goal.

But the soybean export story is not all perfect though. There's are still holes in the story. As noted above, yes we have “sold” a bunch. But “shipments” have sharply weakened recently. The current 761 million bushel shipment as of 12/14 looks okay at -10% from average. That seems okay considering USDA's -11% whole year goal. We only need -12% from average shipments for the remainder of the year. But the past four weeks of shipments have dropped to -33% from average. Yes, in the coming days the Mississippi River at St. Louis will rise from -0.5 feet stage height up to +3.3. But that's temporary. If the current NOAA forecast for January - March holds, below-normal moisture for the Eastern Cornbelt/normal for the Western, we'll have concerns again. But the big hiccup that has been in place, Brazil's price advantage, still remains. Brazil is still $33 per tonne cheaper than the US for immediate delivery. Bids for delivery three months out widen their advantage out to $48.

Aside from the 151 million tonne estimate from Refinitiv, Reuters newswire's research group, most others are still keeping Brazil production losses limited. Four other private groups last week suggested 153 - 160. Conab and USDA, recently lightly lowered, are currently 160.177 and 161 respectively. Allendale suggests up to a 4% decline from lightly lower acreage and a light yield drag from later plantings, 156.5. You cannot take another step lower in production until we get into January.

Argentina devalued the peso against the US dollar by more than 50%. Their government said they would try to raise export tariffs from 31% to 33% for soymeal and soyoil exports. So far, the government 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 consistent change from normal precipitation to normal El Nino above-normal.

USDA has ending stocks at 245. We can prove their domestic crush estimate is low by 10 - 20 million bushels. We cannot really jump export sales much at all though. 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: The general trend over six months is sideways. But the recent action over five weeks is down. Today's test, and failure, at the downtrend line for this move was bearish. For tomorrow that resistance point is 1322 ¼. From a chart perspective this market is in a short term, made a new low just days ago and failed in today's upside test. There is only the major low from 10/11, 1282 ½, left as support. Bulls need to see a successful break of this downtrend line before discussing neutral or higher prices. There is still an intraday gap left open at higher prices, 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: Though we may not like it the soybean market is correct in this price break. Concerns over Brazil have very lightly eased over the past month. Argentina's situation has improved. US soybean export sales have been positive in five of the past six weeks but few are ready to suggest this will be the norm unless Brazilian losses are confirmed. Recent Chinese buying interest has lowered. We can agree this market should be supported over 1295. But the argument needed for a rally is not quite there yet. There are still a lot of ups and downs ahead as we near the very important weather window for Brazil. If the forecast turns back to normal precipitation and stays there then you can validly remove all risk premium. For producers we are holding cash beans unhedged...Rich Nelson

Trade Recommendation:

(12/22) Stand aside.

Wheat

A cargo ship hit a Russian mine near the Danube River. This added light support to wheat futures. The US weather forecast is beneficial for hard red but detrimental for soft red wheat production.

A cargo ship carrying Ukraine grain hit a Russian mine near the Danube River. Two sailors were injured from the civilian ship carrying flagged from Panama. We do not know if this was a newly laid mine or one placed long ago.

US wheat export sales this year have been all over the place with little consistency week to week. We'll try to point out that the past 21 weeks have been fine overall with sales +7% vs. the five year average pace. But look at these past four weeks of inconsistencies. Four weeks ago it was +92% vs. average, then -23%, then +162% then last week at -32%. The good news is with “overall” US sales of 546 million bushels we are -13% from the five year average pace. Given USDA's -19% goal the remainder of the year through May can sell only -36% vs. average. We certainly should be able to surpass USDA's low goal. For tomorrow's weekly export sales report the trade expects 200,000 - 600,000 tonnes. That estimate range is anywhere from -52% to +43% vs. average.

Egypt's state grain buyer was said to have ended its recent tender to buy milling wheat for March delivery with no purchases. Offered prices were said to be too high. It is a little negative psychologically but let's also point out they've been active this month. There was a 480,000 tonne purchase on 12/19, a 420,000 purchase on 12/7 and 180,000 on 12/5.

Recent moisture in the Plains, from Nebraska through Texas, was generally 0.25 - 1.00 inch water equivalent. Portions of the Eastern half saw up to 2.00 inches. The current forecast out through two weeks is normal to above normal. The general winter forecast, transitioning to above normal moisture, appears to be working. This would benefit perceptions of the hard red winter crop, KC wheat futures. However, the general forecast for the coming two weeks is below normal moisture for the Eastern Cornbelt, soft red winter wheat areas.

Last week 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. Separate from China's purchases 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. Though we are not exactly wheat bulls we can say we are no longer bears...Rich Nelson

Trade Recommendation:

(12/21) Stand aside.