Positive weekly export sales reported today. Mixed weather still ahead for Brazil

Grains

Brazil's current weather forecast could be called mixed. The Center/West region will see mostly normal moisture over the next seven days. The second week forecast is mixed with some areas above and some areas below. 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

The general corn story remains unchanged at this time. Positive weekly export sales were reported today.

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.

US corn for export continues to hold a price advantage over Brazil. For both short term and extended delivery the US Gulf is $10 to $12 per tonne cheaper, $0.24 to $0.30 per bushel. Considering Brazil's cheaper shipping, not shown here, the US advantage is light.

Weekly export sales today cover Fri 1/5 – Thu 1/11 activity. Sales of 1,251,1099 tonnes were reported. The trade estimate of 500,000 – 1,200,000. 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% vs. the five year average. 12 of the past 16 weeks have been over that goal. US export prices have an advantage over BZL. If sales run +10% through August we'll be 98 million bushels over USDA. If sales run -10% then we'll miss by -67. Allendale is +50 million bushels vs. USDA's whole-year goal.

The Buenos Aires Grains Exchange estimates 90% of Argentine corn planting is now complete.

This week the Rosario Grains Exchange 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 last week 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.

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.

Supply: The market looked for one message from USDA last week. “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 on Thursday. 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 467 3/4 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 1/4.

Soybeans

A new overnight export sale and a positive weekly export sales report were unable to support soybeans. New downtrend lows were just made on Thursday. That 1201 low yesterday was right next to psychological 1200 support.

USDA reported an overnight export sale of 297,000 tonnes of US soybeans to Chinese buyers. This is the first overnight sale since 12/19.

Brazil's pricing advantage vs. the US has increased. It is now $46 to $56 per tonne cheaper, $1.25 to $1.52 per bushel.

Sales of 781,277 tonnes were reported for US soybeans on today's weekly report. The trade estimate was 400,000 – 900,000. 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 -17% from average. 12 of the past 14 weeks met that goal. This week's sale was -4% from the five year average. Allendale is +10 million bushels over USDA's whole-year view. Brazil’s clear price advantage remains. There are concerns over recent declines in shipments. Though this week's shipment was +23% vs. average the prior 9 weeks were -30%.

The Buenos Aires Grains Exchange estimates 97% of Argentine soybean planting is now complete. They report 55% of the crop is classified as good or excellent. Additionally, 28% of the crop was reported to be in reproduction.

This week the Rosario Grains Exchange upped their Argentine soybean production view to 52 million tonnes. The US ag attache is up to 50.5. USDA last week 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.

Here in January the range of reasonable Brazilian soybean crop estimates 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.

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.

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 on Thursday. Prices are quite close to 1200 psychological support. 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 1281 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. We don't have a Brazil forecast of hot and dry. Additionally, production forecasts are not 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

Wheat ended the week with light gains. Shipping disruptions and weekly export sales added light support. This week would still be considered a disappointment though. KC and Minneapolis pushed to new long term downtrend lows on Thursday. The US Plains will soon switch from below normal temperatures to above normal. Additionally, good moisture is seen next week.

USDA reported 707,632 tonnes for last week’s wheat export sales. The trade estimate was 150,000 – 500,000. This was the best sale for this specific week in 13 years. 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 -44% vs. average through May. Wheat sales have been quite erratic but over 25 weeks have averaged +4% vs. average. Allendale is +20 million bushels vs. USDA.

An analyst with a research firm called Kpler estimates 45% of grain ships set for passage through the Suez Canal are now being routed around the Cape of Good Hope. Yesterday the WTO released an estimate of 40%.

The US Climate Prediction Center released the monthly update to the long term US weather forecast on Thursday. 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.

The Kremlin reports there was no prospect of Russia's involvement with any new Ukraine grain export deal. They suggested there were huge risks for any cargoes that are active. This comes in response to yesterday's story that Ukraine's ambassador to Turkey was in negotiations for a new UN sponsored deal. The official Ukraine export deal, one with Russia's involvement, ended in July.

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: Russia's wheat exports in January may not yet fall to below last year levels. We still expect it will soon. KC and Minneapolis pushed to new downtrend lows this week. 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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