Traders wait for clarity on Brazilian weather. Corn and wheat post new lows.

Grains

Moderate rains last week helped Brazil's three main Center/West states. But for two of them, Mato Grosso and Goais, it won't last in a meaningful way for long. The general forecast is normal to below normal rains ahead. We do agree that bears are right in pointing out the third state in this Center/West region, Mato Grosso do Sul, has seen benefit recently. Normal to above-normal rains are set for them over the next two weeks. But we can't really say there is a wholesale forecast change as we prepare for the big deal for yield determination still ahead. Also, there is no real fix for the South. The two main Southern states will remain with normal to above-normal rains over the next two weeks. There is a light, valid, production hit to expect from weather to this point for Brazil. We can't say it is time for the market to panic until perhaps the second week of December, assuming no weather improvement.

Argentina saw a return to dryness in the prior two weeks. The forecast has turned beneficial though, normal to above normal rains. We don't have a clear change to El Nino conditions, above-normal rains, yet. El Nino is not statistically tied to Brazilian corn and soybean yield changes.

Corn

A new low and lowest close have continued the general long term downtrend. Crop losses for the small Brazilian 1st corn crop are not enough to change the general US supply story. In addition, Argentina will end its two weeks of dryness and return back to normal to above normal for two weeks.

US corn harvest as of Sunday is 96% complete. This ends the weekly Crop Progress reports for the year.

The export price advantage in US corn vs. Brazil remains in place. It has lightly increased over the past week for near term delivery. The US is cheaper than Brazil for the next two 30 day delivery periods by $22 and $28 per tonne. For the third and fourth month out delivery it is $8 to $10 cheaper.Brazil's price advantage in soybeans remains in place. Compared with the prior week, their advantage for near term delivery has lightly narrowed.

Weekly export sales were +48% from average on Friday's USDA update. US export prices have an advantage over BZL. Allendale has upped our forecast from even with USDA to now +50 million bushels.

Ethanol production has moved back to a counterweight against positive US export sales. We need to see +2.9% from last year through August to hit USDA. Only one of the past six weeks have met that goal.

On Wednesday the Brazilian research firm, Agroconsult, estimated total corn production at 128.7 million tonnes. USDA on 11/9 was at 129. Conab on 11/9 was at 119.006. Two other private estimates this month include AgResource 11/8 at 123.5 and StoneX 11/1 at 128.

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%.

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.

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 major low December 7. Separate from our view on fundamentals the seasonal would suggest a bear move for another week then higher prices into spring.

March Corn Chart: The long term downtrend remains. New long term downtrend lows and a lowest close were made today. 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. Our general discussion of 430 futures for a target remains. For producers we continue to hold hedges...Rich Nelson

Trade Recommendation:

(11/13) Stand aside.

Soybeans

Stable trade was noted. After last week's moderately helpful Brazilian rains the trade is waiting for clarity on the coming two weeks. We are nearing the key yield setting time in the weeks ahead.

There were no overnight sales this morning.

Brazil's price advantage in soybeans remains in place. Bids for short term delivery are $22 per tonne better cheaper than the US, $0.60 per bushel. For the next three months out their advantage widens to $40 - $45, $1.10 - $1.21 per bushel. We will point out that their short term delivery advantage has narrowed. On 11/19 the 30 day delivery bid was wildly better, $50 per tonne. By last week it was down to $26. Now it is down to $22. We agree it is progress but it is still not enough.

Weekly export sales were -38% from average last week. Allendale is currently at USDA's whole-year export goal on our balance sheet. As we get closer to the key yield determination period for Brazil, and assuming no clear change in their weather, we will then discuss export increases.

The last two Brazilian estimates on Friday were  Safras E Mercado at 161.38 million tonnes and Hedgepoint at 160.2. Officially no one is really reducing crop production estimates yet.  USDA on 11/9 was at 163. Conab on 11/9 was at 162.42. But the lack of any serious declines yet are completely okay. Yes, they will likely be lowering them in the coming weeks but ethically it is way too early. Other private estimates released this month include AgRural 11/13 163.5, AgResource 11/8 156.08, StoneX 11/1 165, Abiove 11/22 164.7 and Agroconsult 11/22 at 161.6.

As we have discussed Allendale can see -2% for Brazil from lower acreage and -2% from the late planting impact off trend yields. That would put us theoretically at 156.5 million tonnes. Yes, we will very likely suggest larger hits to production in the coming weeks.

As you know, Brazil's soybean yields are really made with weather specifically in the window of time for the reproductive phase (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. Though it is hard to wrap your head around it you don't even need to fix soil moisture deficits. You just need one month or two of normal rains specifically at the reproductive window. Bulls do have two winning arguments they can make right now. 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. A 25% Brazil production loss to US export gain assumption, 2.05 mt, would equal 75 million bushels for the US. 2) Additionally, we all know markets do not price grains with information only to present time. They price grains with the assumption the “right now” situation will be lasting into the reproductive phase.

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.

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.

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.

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 low is generally made October 3. After a minor rally to October 23 there is one last minor bear move to November 13. Separate from our view on fundamentals the seasonal would suggest a rally into spring.

January Soybean Chart: Today's limited range price action did close below the general uptrend support line. This would now suggest a more neutral approach. The next resistance point is the 11/15 recent high of 1398 1/2,. After that you have 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 improve 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 28.

Wheat

New contract lows were noted for all wheats. A +2% jump for ratings this afternoon insures lower trade on the overnight. The market is monitoring the extended forecast to see if this forecast for improved Plains moisture is ahead.

The last weekly Crop Progress report of the year showed winter wheat ratings as of Sunday +2% from last week. Now at 50% good/excellent, this is the best rating for this week in four years. In the market's view, this 2023 fall planted crop, for harvest summer 2024 is differentiating itself from recent poor years. USDA will restart weekly ratings for this crop after winter dormancy ends on April 1. This is bearish psychologically. Ethically, we must inform you that rating at the end of fall have no real statistical tie to final yields. The ugly truth is that it makes no difference how great or terrible the crop looks headed into dormancy. Spring rains are the primary yield determinant. As you know futures will still go up and down during winter on various moisture patterns.

Ukraine's agriculture ministry reports July 1 to current grain exports -28% from last year at this time. This is primarily a corn issue. For wheat specifically, they estimate 5.5 million tonnes this year vs. 6.5 last year. Russia's wheat export increase so far this year more than offsets this.

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.

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.

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: 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.

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