USDA avoids the tough questions in the monthly s/d update.
Grains
USDA issued the monthly supply/demand report today. Changes in December are typically more muted than prior months. The coming four USDA reports on January 12 will have more of a market influence. On that day the Annual Production Summary will revise 2023 US corn, soybean and wheat production. Additionally, an update on US miscellaneous use will be implied from that day’s quarterly Grains Stocks report. That report gives an old crop stock estimate as of December 1. The normal supply/demand report holds revisions to the US balance sheet and perhaps more aggressive changes to South American production. Lastly, USDA will release on that day the first report covering new crop. The Winter Wheat and Canola Seedings report gives the first estimate of fall 2023 planted winter wheat acreage.
Longer term weather outlooks for South American suggest no major changes from the current pattern over the next three months. Brazil's Center/West region will remain with above normal temperatures and below normal precipitation. Their South will remain with below normal temperatures and above normal precipitation. Allendale has very lightly reduced concern with Brazil this week. Mato Grosso do Sul, about 10% of production, has moved from below normal precipitation previously to now normal. Planting is wrapping up for the small 1st crop of corn. Yield determination, specifically focused on weather at reproduction, will start in January. The large 2nd crop plants in January and sees yield determination in April. Soybeans are wrapping up with planting and will see the bulk of yield determination in January. There is only a light, valid, production hit that can be factored in for 1st crop corn and soybeans. January is a much more important month for both. The market may wait until perhaps the second week of December before showing more concern.
Argentina is off Allendale's list of concern. We have their corn and soybean crops at trend yields. Drew's latest update keeps that story in place. Normal to above normal temperatures and mostly normal precipitation are seen over the next three months. We will note the one week out forecast is dry for Cordoba and parts of Santa Fe. We cannot yet suggest above trend yields. El Nino years, remember this is the sixth strongest since 1950, generally bring above normal rains and above trend yields.
Allendale has been more active with the Ag Leaders conference series updates this year. In addition to our big January and July conferences we have included updates every two or three months. Our next minor update was released today. One area which has changed since our last update is with the trade's perception of interest rates. In this week's AgLeaders update we covered how this impacts commodities and specifically grains. Make sure you don't miss it.
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Corn
Corn ended the week with another attempt to test minor upside resistance on the chart but it was rejected by the close. USDA choose to push most of the bigger questions on today's report until January. Even considering a likely export sales increase ahead the general US supply story remains.
US ending stocks were lowered today, from 2.156 billion last month to 2.131. The trade estimate was for virtually no change at 2.152 (ALDL 2.106). A mild report is generally seen in December. In 11 of 20 years the changes were limited from 0 to 25 million bushels. USDA raised the US corn export estimate by 25 million. It could have been raised more. The past 10 weeks have averaged +43% from the five year average. Ift remaining sales cool to just +10% from average there could be another 112 million to add. If they run even with the average the increase would be 8. Given that the US still holds a price advantage over Brazil it is not out of reason. While USDA will likely be adding a little more to exports in the coming months there is a looming decline waiting for corn for ethanol. With no seasonal maintenance in September the marketing year started off strong. However, the past eight week pace of +0.5% from last year has failed to meet the +2.1% pace we need to see to meet USDA hopes. If the remainder of the year holds this +0.5% pace we’ll miss USDA’s goal by 123 million bushels. 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.
The world balance sheet showed a minimal change for ending stocks, from 315.0 million tonnes to 315.2 There were no changes for the 55 mt and 129 mt estimates for Argentine and Brazilian corn production today. The small 1st crop of corn out of Brazil could perhaps be marked down by 1. There are light concerns about 2nd crop planting in Brazil that starts next month. We are still months away from yield determination for the big 2nd crop. There is still a discrepancy with the Brazilian government. Conab this week lowered theirs from 119.1 to now 118.5. For smaller producers USDA did make some changes. Ukraine was upped by +1.0, Russia +1.0 and Egypt +0.2. This offset -1.0 for Mexico and -0.2 for Canada.
The Chinese government released their own supply/demand report today. They made no changes from last month. Their corn production is seen at 288.23 million tonnes, up lightly from 277.2 last year. Their import estimate was left at 17.5, down from 18.7 last year. USDA is at 277.0 and 23.0 for those two numbers respectively.
USDA reported an overnight export sale of corn this morning, 165,000 tonnes to Unknown. There had been some China rumors earlier this week so we'll say it is a possibility. But let's not get carried away. China buying has been relatively low for corn, 1.406 million tonnes as of 11/30. We do have very good US corn export sales. They are not China though.
For Brazil's crop we now have Conab at 118.528 million tonnes at USDA at 129.0. They've been at odds with corn for some time. Last month was 119.066 and 129.0.
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 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.
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. 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 17 3/4.
Soybeans
Though soybeans now have four days of stable trade near 1300 the January has yet to really hold any upside breakout attempt. USDA made no changes for the US balance sheet today and only a minimal decline, reasonable, for Brazil's crop.
US ending stocks were left unchanged from last month at 245. The trade expected no real change at 243 (ALDL 227). That’s not too out of line for December reports. USDA has made no changes on 9 of the past 20 years. Some would question why there was not an export sales increase. The past four weeks specifically have shown large sales, +94% vs. the five year average. If they cool to +10% from average through USDA will need to up their estimate by 177 million. If they cool to even -10% that would still be enough for a 37 million increase. But this story is not perfect. Though near term Brazilian export bids have waffled in recent days they are currently at $20 per tonne cheaper. That widens to $41 for extended delivery. Additionally, the Mississippi River at St. Louis is forecast to fall below the 2012 drought year low over the next week. It is also a little early to make large claims about Brazil’s production prospects. USDA also chose to stand pat on domestic crush. Two months of this year have been reported at +3.3% vs. last year. To hit USDA’s goal the remaining 10 need to run +4.1%. We’re okay with that given we’ll have more plants coming online in the months ahead. A little uncertainty is also there with the fire at ADM’s very small facility this week. 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.
World soybean stocks were lowered minimally on this report, from 114.5 million tonnes to 114.2. Of interest USDA left Argentina’s crop unchanged at 48 million tonnes. They went back and revised the long completed 2023 harvest for Brazil from 158 to now 160. For the coming 2024 harvest a reasonable -2 mt change was noted to now 161. Conab lowered their 162.4 estimate from last month to ow 160.2 this week. It is still too early to officially lower Brazilian yields. Weather specifically during the reproductive phase, January/early-February, is the key yield determinant. On the China side USDA raised their import estimate from 100 mt to now 102. The Chinese government is a bit under that at 97.25.
The Chinese government released their own supply/demand report today. They made no changes from last month. Their soybean production is seen at 20.89 million tonnes, up lightly from 20.29 last year. Their import estimate was left at 97.25, under 98.7 last year. USDA is at 20.5 and 102.0 for those two numbers respectively.
USDA announced a third overnight export sale of US soybeans this morning. Today's 136,000 tonne sale to China puts the week's overnight sales total to 393,000. This wraps up the Friday - Thursday USDA export sale week. Remember, Friday morning overnight sales are often included as a Thursday sale. This week's overnight sale of 393,000 tonnes is under the prior three (587,300/452,400/424,000).
For Brazilian production estimates we have Conab at 160.177 and USDA at 161. These are lightly off last month's 162.42 and 163 numbers. There are no big panic declines yet.
Late Monday night the Malaysian Palm Oil Board will release November's palm oil statistics. Production is expected at 1.809 million tonnes. That would represent a drop of -6.6% from the prior month. Exports are seen 1.526. End of November stocks are expected 2.437. This would stop six months of increases.
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.
January is currently the lead contract for soybeans based on volume and open interest. That will change next week.
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.
January Soybean Chart: This is still a market in a three week downtrend. You could argue it is in a general three month sideways trade with current action in the lower portion. Today's trade started out with a good bounce but that did not hold into the close. Support on the chart is the harvest low from 10/11 at 1270 ¼. Bulls would like to discuss a move to at least the intraday gap left from the 11/22 close of 1356 ½. So far, this market cannot do it. After that we have resistance points from the 11/15 high of 1398 ½ then the high from 8/28 at 1420. Also, let's point out there is an an open upside intraday gap to the 8/28 close of 1416 ½.
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: USDA held off from making any real changes today. The market is okay with that view given current pricing. While still feel comfortable with saying soybean futures will likely see 1400 based on an eventual stock near 200, we will fully point out the market is not acting like it. Brazil production will likely run lightly below trend yields given this forecast but it is not as a severe of a concern as from early November. 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 30.
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Wheat
This week would be viewed as a success for wheat bulls. After such a terrible 18 month downtrend Chicago has rebounded to prices last seen three months ago. KC is at prices from two months ago. Chinese buying, hopes for Russian export declines and hopes for interest rate declines have finally stabilized prices.
US ending stocks were lowered from 684 million bushels last month to 659. The trade estimate was 684 (ALDL 684). These private trade estimates were mostly issued to newswires Thursday – Monday, ahead of this week’s China buys. USDA today raised their export estimate by 25 million today. Given this week’s 1.120 million tonne Chinese overnight purchases this is reasonable. We don’t have strong feelings on US exports. Bulls will note the recent 19 weeks of sales have run only -2% from average. If that keeps up USDA will add another 48 million to their estimate eventually. But weekly sales during these 19 weeks were quite erratic. Three weeks ago the sale was -70% from average. Two weeks ago it was +92%. For this 18 month downtrend in wheat prices there has not been a tie to the US or world balance sheet. Perceptions of government involvement in Ukraine exports, a strong Russian export program and rising US interest rates were running the show. We are more allowing of lightly higher pricing than in previous months now. Recent Chinese buying, the perception that Russia’s exports may slow and likely lower interest rates in 2024 are lightly supportive.
The world ending stock estimate was minimally changed, last month was 258.7 million tonne and this month 258.2. Production increases were noted today for Australia (+1), and Canada (+1) offset a decline for Brazil (-1).
A fourth overnight purchase from Chinese buyers was announced this morning, 110,000 tonnes for US soft red winter. This week's China buy total comes to 1,120,000 tonnes. This doubles their purchases of the year to 2,129,873 tonnes. This would be the third largest yearly buying pace of the last 15 years. Over the past three years China's imports have increased to 10 - 12 mt annually.
The Russian wheat crop looks great. That was the call from the head of science at Russia's state weather forecaster, Hydrometcentre. In an online presentation he estimated only 4% of the crop was poor as it heads into winter dormancy.
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: Separate from China's purchases this 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 exact wheat bulls. We can say we are no longer bears...Rich Nelson
Trade Recommendation:
(11/17) Stand aside.