US hard red wheat ratings improve. Decreases noted for soft red.

Grains

For now more than a week Brazil's weather forecast has held the view of a changed outlook. In the Center/West that main state of Mato Grosso will see normal to lightly above normal rains over the next two weeks. Goais sees mostly above normal in week one then normal-below normal for week two. Mato Grosso do Sul, which is not as dry as the first two, will see mostly below-normal. In the South they'll see mostly normal to below-normal. Brazil is not exactly fixed. And this forecast would not suggest a return to trend yields. But a forecast change exactly at the same time as the reproductive phase begins, is a big deal. Don't forget the US 2023 summer as we transitioned from June to July and the price decline.

The next two weeks are forecast for mostly normal rains in Argentina. Some areas will see lightly above normal while others will see below normal. 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

Another new low for the long term downtrend in corn was noted. Traders note the beneficial Brazilian forecast remains in place. Additionally, though US export sales remain strong they may not be enough to change the US supply story.

On Tuesday USDA reported November corn for ethanol usage at 455 million bushels, +1.0% from one year ago. Due to an oddly strong September the first quarter will wrap up with 1.345 billion bushels of usage, +4.9%. That means the remaining year, to meet USDA's +2.9% goal of 5.325, will have to run +2.2%. We have light concerns about USDA's hope given that only 3 of 11 recent weeks have met that pace.

On Tuesday StoneX lowered the prior Brazil 1st crop view from 26.45 million tonnes to 25.81. They lowered their prior 97.33 2nd crop view to 96.56. This -1.4 mt cut is not that much. They do not release an official total crop estimate. Though there is concern over this coming 2nd crop corn planting in Brazil it is not yet time to officially hit production numbers. USDA last month left their view unchanged at 129.0 million tonnes. Conab, which already started out with a lower estimate than USDA, lowered theirs from 119.066 to 118.528 in December.

In December 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 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 for that downtrend was made today. Bulls can argue a small rebound to fill the upside intraday gap to the 12/29 close of 471 ¼. However, the downtrend remains until resistance at 477 ¼ 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: Different than soybeans, you cannot really make moderate or big cuts to Brazil's corn crop. The big 2nd crop hasn't even started planting in any real way. If you're arguing for lower acreage of some sort that is only -1% or -2%. You cannot take any large production cuts based on yields until months from now. That leaves us noting any further declines in the US ending stock situation, which we do expect, may not be enough to change the general story. 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, 1/3 move 28 risk to 19, objective 0. Closed 6 1/8.

Soybeans

The beneficial changed Brazilian weather forecast remains. Chinese buyers also continue to hold from the US market. New lows for this downtrend were made today before a light recovery into the close.

Since 12/15 there is only one overnight soybean export sale, a small one from 12/19. Chinese buyers have disappeared.

Yesterday Bunge reported its Decatur, Indiana soybean processing plant was closed due to an unspecified mechanical failure. Today they clarified it was from a natural gas pipeline running into the plant and that it would be operational by the weekend. We hesitate to suggest this was the reason for market weakness on Tuesday.

Tuesday's USDA soybean crush report for November showed 200.1 million bushels processed, slightly over the 199.7 trade estimate. This number was +5.5% from last year. With 576 million bushels crushed in the first quarter we are +4.0% from last year. USDA's Sep - Aug whole-year goal, 2.300 billion, would be +4.0%. Given that we'll have more plants online in the coming months we remain +10 million bushels vs. USDA.

This week StoneX lowered their 12/1 view of the Brazilian soybean crop, 161.9 million tonnes, sharply to 152.8. They are now the lowest estimate of the trade group. The prior five private estimates were 153.0 - 161.9. Conab and USDA have only lightly lowered their views, 160.177 and 161.0 respectively. Allendale is only -4% from starting production at 156.5 mt through December. We can now make further, light, declines in production now that we are in a month where weather really matters.

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

USDA has ending stocks at 245. We can now prove their domestic crush estimate is low by 10 - 20 million bushels. We cannot really jump export sales much at all. 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: Soybeans are in a downtrend. Yesterday they broke the main prior chart support from the 10/11 lows. Yesterday's down move also filled that intraday gap to 1270.  Today's trade saw new lows yet again. Bears would use the daily chart gap at much lower prices, 1212 ½ - 12/12 ¾, as the next objective. Until we find support and post a day that rejects lower trade, this is the chart discussion. Bulls could argue for a small move to fill the recent daily chart gap at 1290 ¾ - 1296 ¾. But that would not change anything. The general downtrend line at 1312 ¾ still needs to be taken out. A move past that would open up the intraday gap at the 11/22 close, 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: The soybean market has quickly changed its mind in recent weeks. It is now trading the Brazil weather story exactly as if this were the summer 2023 US story. In that story the market was wildly overhyped during the vegetative growth stage, not statistically tied to yield changes, then sharply dropped as rains occurred right as reproduction started. We will agree that IF this current forecast holds through the reproductive stage then bears would be right and prices can stay at 1295. For producers we are holding cash beans unhedged...Rich Nelson

Trade Recommendation:

(1/3) Stand aside.

Wheat

Select states reported improved crop conditions for US hard red while decreases were noted for soft red. All three wheat markets have now removed 50% of the rally from late November lows to early December highs. Though many could argue the general low from this long term downtrend are in place, it is tougher to suggest it is time to rally though. US weather forecasts remain beneficial.

During the winter months, when USDA in Washington DC is not releasing weekly Crop Progress reports, a few states release their own numbers once a month. The general trend in ratings for hard red winter has improved. From 11/26 to 12/31 Texas has improved from 57% good/excellent to 63%. Oklahoma increased from 56% to 70%. Kansas went up from 35% to 48%. Nebraska changed from 58% to 61%. Soft red areas decreased. Illinois went from 87% to 70% and Kentucky changed from 93% to 85%.

The chairman of the government run Food Corporation of India suggests the country's wheat crop will remain above minimum needed levels by April 1.

Normal to above normal moisture is seen for the US Plains over the next two weeks. The next precipitation run, late this week, will brin 0.25 - 1.00 inch of water equivalent to all of the hard red areas. It will be Eastern focused where heavier amounts will run 1.50.

In December 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. 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:

(12/29) Stand aside.