Government Shutdown: At the time of this writing Congress shot down both the bloated Continuing Resolution that was discussed Tuesday and Wednesday as well as a more streamlined offering that was in the works Thursday. There is no talk of an alternative at this time. We assume a government shutdown will start at midnight. That most recent two shutdowns of interest are 12/22/18 - 01/25/19 (35 days) and 10/01/13 - 10/17/13 (16 days). For grains this means no weekly export sales reports on Thursday. After the shutdown the Foreign Agricultural Service will likely issue one big number for the whole period combined. We likely won't see the January 2 soybean crush or corn for ethanol reports or the January 10 monthly supply/demand, Annual Production Summary/quarterly Grain Stocks/annual Winter Wheat Seedings. This would be delayed until after a shutdown ends.

Brazilian Real Intervention: The real recovered a little of its weakness overnight. The Brazilian central bank spent $5 billion in intervention funds to support their currency. This was said to be their largest intervention effort since their current became free floating in 1999. This comes after a $3 billion intervention the day before. The trade remains concerned that Brazil's sharp budget deficits will not be fixed. As of today the real had depreciated a full 25.6% vs. the US dollar since the start of the year! A depreciating real gives their export market an edge separate from soybean supply/demand fundamentals.

Chinese Purchases: Reuters newswire reported rumors of heavy US soybean buying from China. They report 500,000 tonnes were purchased this week for March - April delivery. They report 750,000 tonnes were purchased for January - March delivery last week. We are not endorsing this specific story as fact. It true, it not political appeasement. This is building a minimal reserve in case of any changes to US trade policy after January. Some also could suggest this year's dry finish to US weather may make them more viable for state storage. Whether the story is true or not, and to what exact extent, is likely not the issue. The issue is that so far, we are still getting US sales. Additionally, these sales are occurring at a time when Brazil is getting all the sales.

Overnight Sales This Week: There were no sales announced this morning. But this week's total of 471,000 tonnes is good news. It means we'll have 800,000 - 1,400,000 tonnes in total sales for next Thursday's weekly report. It is important to note that US sales seasonally drop like a rock now. This is the time when orders should be going to Brazil. For next week, we are going to handily beat the five year average which drops to only 664,128 tonnes. The bull argument is despite concerns over future sales we are getting in orders right now and also doing a good job of shipping them out quickly. The bear argument still remains. What will cancellations look like in the coming weeks?

Thursday's Just Fine Export Report: Soybean export sales in this week were 1,424,158 tonnes. The remainder of the year can fall to -21% and meet USDA's goal. Each of the past ten weeks has met this goal. Thursday's sale, included in those ten weeks, was -16%.

Argentine Planting: The Buenos Aires Grains Exchange estimates 76.6% of planned soybean acres have been planted so far. The trade has a very light concern for this crop.

Falling Palm Oil: Another bearish factor which is still with us is falling Malaysian palm oil pricing. Palm oil was an oddity in the oil world with its sharp August to November rally. The other oils did not join in (soy/canola/heating oil). But since that November peak it has now removed -15% from its highest close.

Monday's Poor Crush Numbers: USDA's current whole-year view for crush this year is for a record 2.410 billion bushel usage. That would be +5.4% from last year. November usage was a disappointment at +2.2%. This wraps up the first quarter of the year, Sep - Nov, at +4.8% from last year. We fully expect rebounding activity December on out. However, this report could encourage USDA to keep their current view on the next January 10 monthly supply/demand report. In the trade's view, crush is no longer an offset to existing export concerns.

Basis Tightens: As of 12/12 soybean basis had advanced $0.29 per bushel since the worst point of the year at harvest. Even in heavy supply years there is typically further advancement ahead. Typically there is another $0.07 left until the year's peak in early January. There is only a 5 cent premium from January to March soybean futures. That does not cover the cost. Between basis and storage it is time to sell cash soybeans. Producers frustrated with the third end of this story, low futures prices, would then start a conversation about re-ownership on paper via futures or call options. Please contact your Allendale crop marketing specialist for that discussion.

USDA US Supply/Demand: USDA is being very conservative with their current view of the US balance sheet. And they are right to do so. Though export sales are ahead of their current export view right now, much of this could be due to expected trade policy changes. If there are cancellations, and remember Brazil is cheaper than us and their new record crop ahead has no real weather hits, final US exports could be -100 to -150 million bushels. There is that much sway in this balance sheet. Our models imply their current 470 ending stock would imply 1060 for futures pricing. We can agree with the market's want to trade below that on trade policy concerns. We fully agree with it. But right now, 12/19, we have another question. “How much of a needed discount is too much?" January hit 945 ¼ today! To make that work you're looking at a theoretic ending stock of 650 million bushels. That's 180 million bushels of export risk. Yes, markets can price themselves at any level. However, is this too much?

Tariff Talk: President Trump announced on social media that on his January 20 inauguration he would, “… sign necessary documents to charge Mexico and Canada a 25% tariff on all products coming into the United States.” He noted this would remain in place until the two countries clamp down on hard drugs entering the US as well as illegal immigration. He also separately noted the US will be charging China an additional 10% tariff, above any additional tariffs, on all of their many products coming into the US.

US Soybean Imports: A minimal 21 million bushels of soybeans was imported into the US last year. 41% of that low amount came from Canada, 1% from Mexico and zero from China.

US Soybean Exports: At this time there are no retaliatory tariffs to discuss. We are a significant exporter for soybeans, 1.695 billion bushels last year. Zero went to Canada, 11% to Mexico and 54% to China.

US Soybean Yields After November Reductions: The drop in USDA's soybean yield estimate in November was astounding, 53.1 bpa to now 51.7. Of the past 25 years they lowered yields in November 9 times. Of those 9 years, there were reductions again in January 6 times. The average of those January declines was -0.8%. A 51.31 bpa yield would lower US production by 35 million bushels. In most years with lowered November yields, another cut was seen in January.

Brazilian rains since September, specifically in the soybean growing area, are -20% from normal. That is not really a concern though as weather during the vegetative growth stage is not statistically tied to final yields. Yield determination, when weather really matters, is in the reproductive stage ahead in January and February. The next two weeks are set to run 4.3 - 7.1 inches for most areas. The average rain over two weeks ahead is 3.6.

Argentine rains since September are -7% from normal. The next two week rains ahead had dried out a bit, only 0.2 - 1.2 inch. The norm for these two weeks is 2.2. Yield determination is in January and February.

Pricing: USDA currently estimates 470 million bushels for ending stocks, Allendale 478. Allendale's pricing models suggest 400 million ending stocks implies 1110 futures, 450 implies 1080, 500 implies 1040, 550 implies 1005 and 600 implies 975. We expect pricing to remain under value for several weeks until trade policy is clarified.

Volume and open interest have rolled from the January to the March contract. March is now the dominant contract.

Chart: Soybeans are in a downtrend and new lows were recently made. The trade will be eager to see if any attempts back to prior major lows, 982 ½ on the March, are successful. So far, the trade has shown no interest in filling the upside intraday gap from the 12/12 close, 1003 1/4..Rich Nelson

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