Chicago wheat advances on KC again. Will the Plains see rains next month?
Grains
Yesterday's scattered rains in Brazil's Center/West region brought 0.4 to 1.4 inch to much of the secondary states of Goais and Mato Grosso do Sul. The main state, Mato Grosso, saw that amount only in the lower ⅓. Those three states will see another 1 inch this week. Drew Lerner remains concerned that warm and dry conditions will return next week for the Center/West. The wet southern states of Parana and Rio Grande do Sul will see continued rains this week, 0.6 to 4.9 inches. There is a light, valid, production hit to expect from weather to this point. The trade is lightly pricing additional premium based on the potential for no improvement in weather in the months ahead when reproduction hits.
We've added a little concern as Argentina's three weeks of normal rains changed to normal-below normal last week and this week. We will point out next week may hold that shift we've been discussing. Next week's forecast is currently for normal-above normal. As you know, this would be the beneficial change that is generally seen, specifically for Argentina, during El Nino years. El Nino is not statistically tied to Brazilian corn and soybean yield changes.
Corn
As with soybeans today's trade would be lightly disappointing for corn. The morning's drive to + 5 ¾ cents higher turned into a minimal gain by the close. Corn continues to do the best job it can in avoiding new lows. The heavy US balance sheet is lightly offset by concerns over Brazil's smaller first corn crop. Its reproductive phase, when weather really matters, runs mid-December through January.
There were no overnight export sales this morning. For the three days completed of this Friday - Thursday export period there is only one sale of 104,000 tonnes.
APK-Inform raised its view of the 2023 Ukraine corn harvest from 24.8 million tonnes to 26. USDA is a bit different. This month they upped their October view of 28.0 to 29.5.
USDA's recent annual Baseline Projections report suggested 2024 corn acreage -3.9 million to 91.0 million. We have been told one US research firm, which has gone by many names in recent years (Sparks/Informa/IHS Market), suggested 91.4 today.
AgRural estimated Brazil's 1st crop corn planting 80% complete on Monday. This is lightly under last year's 82% by this point.
Soybeans have better reasons to rally. The big reproductive phase for 100% of their crop, January, is directly ahead. For corn, the clear bulk of production, 2nd crop, sees yield determination months away. Also, with this large US balance sheet you have to prove a significant amount of Brazilian damage to support a rally. Let's start backwards here. The extreme bulk of US corn price determination comes from the US balance sheet, not the world. 1.5 billion in stocks = 540 futures, 1.6 = 485, 1.7 = 440, 1.8 = 410. If you want to argue for 500 corn futures you need a final ending stock of 1.575 billion or so. We need a 581 million bushel drop in ending stocks from USDA's 2.156. That would require a huge hit to Brazil.
In recent weeks we've discussed this Brazilian production issue with more depth. 1st crop, planted now and which sees reproduction in December/January, is about 21% of total corn production. Trend yields would equal 26.8 million tonnes. We would feel comfortable with saying a 5% cut could be reasonable, 1.3 million tonne. If we get into December with no forecast change you're then able to move up to a 10% or 20% hit of 2.7 to 5.4.
But the trade is not stopping with “actual” hits to 1st crop production. There is also the expectation that 2nd crop planting will be delayed and/or reduced. Officially, for a crop that is not even planting, you can't write off production yet. But can a theoretic 5% hit be discussed. As the huge second crop would equal 99.9 mt at trend yields, this is 5.0 mt. Officially, we are only at -1.3 mt for “actual/known” losses to take. That could widen up to around 10 by early December. 1 million tonne equals 39.4 million bushels of corn. Assuming something like 50% of production losses show as US corn purchases our “actual/known” losses of 1.3 mt are about 26 million bushels. A 10 mt production hit, assuming 50% becomes US exports, boosts that to 197. We are aware much of the grain industry is already convinced of much more serious hits, 20% or 30%.
Our recent tally of Brazilian corn production estimates shows USDA 11/9 at 129 million tonnes, Conab 11/9 119.006, AgResource 11/8 123.5 and StoneX 11/1 128. We'll also point out USDA and Conab are still in disagreement about Brazil's old crop 2023 harvest, 137.0 and 131.86 respectively.
El Nino and Brazilian Corn Yields: Over the past 25 years there were 3 with an ENSO reading of +0.5 during their yield determination (April). 2 of those years posted above trend yields (+6.0% and +13.0%). 1 year was below trend (-21.3%). When you look at the dataset including El Nino and ENSO-neutral years Allendale's official stance is that there is no consistent relationship between El Nino and Brazil's corn yields.
USDA reported US corn harvest advanced from last week's 88% to now 95% complete. The trade estimate was 94%. There will be one more week left for harvest numbers.
The Buenos Aires Grains Exchange lowered its view of Argentina's corn planting by 2.7% on Friday, 7.3 million hectares originally to now 7.1.
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.
March Corn Chart: The long term downtrend remains. There are supportive points on the chart but we really can't discuss them unless October's highs are taken out. At a minimum we need to get past that shelf of recent highs 496. Bears are in control.
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. For producers we continue to hold hedges...Rich Nelson
Trade Recommendation:
(11/13) Stand aside.
Soybeans
After yesterday's strong trade, reversing lows of -13 ¼ cents to a net gain of +27, we'll call today's moderately higher trade just “okay”. Just under half of today's +22 cent high was held into the close. The soybean market is on hold waiting for this week's Brazilian rains.
There were no overnight sales this morning. For the three days completed of this Friday - Thursday export period, what determines the weekly 11/30 export sales report, there are no overnight sales to report. It appears we'll go from three neutral weeks of overnight sales, to last week's very strong report, to this Thursday's neutral report to disappointment next week.
Brazil's pricing advantage in soybeans has lightly narrowed in since last week. It is still in place though. Their $24 to $37 per tonne advantage ranges from $0.66 to $1.01 per bushel. Aside from one week Chinese buyers have been a little reluctant to panic-buy from the US. Price is a clear factor.
The Argentine government added another encouragement for soybean exporters. Lasting until December 10 exporters can convert half of their pesos to US dollars at the private market rate of 900 per 1 US dollar. The other half can be converted over to a level near the official government rate of 350. The prior deal was 30% at the private rate and 70% at the government rate. Though this does not change their likely total exports for the year it does bring in a few more bushels in the short term.
The world grain markets would also suggest the recently elected Javier Milei will enact clear beneficial changes for Argentine grain production. No matter what he does it will likely be an improvement. The world grain trade will be interested in seeing whether he does dollarize their economy or change government tariffs on agriculture exports.
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.
We noted weeks ago that USDA's annual Baseline Projections report suggested soybean plantings in 2024 would increased +3.4 million to 87.0. We have been told one US research firm, which has gone by many names in recent years (Sparks/Informa/IHS Market), suggested 87.2 today.
On Monday AgRural estimated Brazil's soybean planting progress 68% complete. This is under last year's 80% and the slowest in four years. This has a light impact on both likely planted acreage totals as well as a very light reduction from trend yields.
As you know, Brazil's soybean yields are really made with weather specifically in the month of January. Their situation in the dry Center/West is relatively close to the near-panic situation many US producers were looking at from planting through much of June. Officially, you really can't write much off at all yet. Just like with the US, if normal rains show up in January the entire bull argument is removed. And remember, you don't need to fix soil moisture deficits. You just need one month or two of normal rains. But bulls have two winning arguments. 1) Without playing fast and loose with the numbers, personal bias, you can already argue for some minor type of production hit. Even a 5% hit, -8.2 million tonnes, could be justified to add a little to US exports. 50% of that, 4.2 mt, equals 150 million bushels. That certainly changes the US balance sheet right? Heck, even just a 25% Brazil production loss to US export gain assumption, 2.05 mt would equal 75 million bushels. 2) But we know markets do not take their pricing cues just from “provable” damage already in place. They are also operating under the assumption that you price in “future” damage for the weeks ahead. What if a production loss does stretch up to -10%?
Our recent tally of Brazilian soybean production estimates shows USDA 11/9 at 163 million tonnes, Conab 11/9 162.42, AgRural 11/13 163.5, AgResource 11/8 156.08 and StoneX 11/1 at 165. We'll also point out USDA and Conab are still in disagreement about Brazil's old crop 2023 harvest, 158.0 and 154.6 respectively.
El Nino and Brazilian Soybean Yields: Over the past 25 years there were 8 with an ENSO reading of +0.5 during their yield determination (January). 6 of those years posted above trend yields (+0.2% to +4.8%). 2 years were below trend (-3.5% and -19.2%). Allendale's official view though is that the data is simply too sloppy to say there is any consistent influence.
Let's start with USDA's soybean balance sheet and discuss the legitimacy of this rally. Remember, our price modeling work shows the extreme majority of US soybean prices are determined by the US balance sheet. It is not just whether Brazil has problems. It is specifically about the exact amount that Chinese buyers procure from the US. USDA has ending stocks at 245 million bushels. They are too low on domestic crush. Before touching exports Allendale's starting point is 221. Keep the soybean pricing matrix in mind, 150 million in US stocks = 1510 futures, 200 = 1400, 220 =1360 and 250 = 1295. As we have noted before, soybean price response sharply changes as stocks decrease into the 200 and below level. In other words, you get stocks below 200 and the price response gets quite exciting. For now let's say a 1400 futures price argument is reasonable. If we get into early December and the forecast reaching into January is still a problem then we can discuss +1400.
January Soybean Chart: This market remains in an uptrend. Support for this uptrend is 1336 1/2. Since we are still in an uptrend there are targets to discuss. The next resistance point is the high from 8/28, 1420. Also, there is an open upside intraday gap to the 8/28 close of 1416 ½. We won't make any claims about testing the next chart point, the major highs from back in July, 1441.
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: We feel comfortable with saying soybean futures will likely see 1400. We'll have to get to the second week of December before we can say +1400 is coming. IF Brazil's forecast does not change, you can make some clear claims about the US balance sheet and much higher soybean pricing. IF the forecast does change, as it is so early in their season, you can unravel every bullish hope quite quickly. 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 16 3/8.
Wheat
A Russian missile attack at Odessa, during the US grain trading session, lightly supported trade. New lows for two contracts were just made yesterday. The US Plains may transition from a dry pattern this month to an improvement December - February.
Ukraine's military reported a Russian missile attack in the Odessa region today. Port infrastructure and administrative buildings were hit.
USDA's annual Baseline Projections report suggested total US wheat plantings for the 2024 harvest, fall winter wheat in 2023 and spring wheat in 2024, would decline by 1.6 million to 48.0. We have been told one US research firm, which has gone by many names in recent years (Sparks/Informa/IHS Market), suggested 48.9 today.
Allendale has suggested that Russia's export increases are a prime reason not to buy wheat on a flat price basis for some time. We suspect their export pace will slow by the end of the year, more than they normally do. We may reconsider our consistent view “don't touch the buy side of wheat” at that time.
SovEcon estimated November Russian wheat exports at 3.9 million tonnes on Monday. This is still a good amount but we will point out it would be -0.4 mt from last year. The prior four months of exports, 19.4 mt, were over last year for a combined +4.8. The wheat narrative has been consistent. Russian export increases far offset the relatively limited Ukraine export declines that were seen through October, -0.2 mt. The decreased exports you may have heard about are with corn, not really wheat.
USDA reported US winter wheat conditions were +1% from last week at 48% good/excellent. The trade estimate was 47%. The five year average for this week is 46%. Allendale will point out this is not a great rating. It is simply better than the prior three years of 32%, 46% and 46% for this week. USDA will report winter wheat conditions for another one or two weeks.
USDA reported US winter wheat planting, hard red/soft red/white, increased from 93% last week to now 95%. This will be the last planting report.
Every third Thursday the US government's weather agencies, NWS/NOAA/CPC, release updated long term forecasts for the US. The recent update suggested above-normal rains for much of the Plains hard red winter wheat area. Are two years of trying conditions the trade wonders if this year will show better conditions. Though spring rains are clearly the main yield determinant the trade will often trade psychologically based on perceived moisture recharge or deficits over winter.
Wheat Summary: The general pricing story for wheat remains in place. Prices are being determined by the perception of Russian and Ukraine exports being unimpeded over the big picture. Tight US and world balance sheets are not driving prices. While we have been patient with this long term downtrend we assume Russian exports will be restrained after the new year and there may be a change to general flat wheat prices. While we are not eager to trade wheat from a simple buy or sell flat price we are interested in the Chicago/KC spread. If there is some type of light moisture recharge this spring that spring could improve to -30...Rich Nelson
Trade Recommendation:
(11/17) Stand aside.