- HEADLINES: Choppy Chicago with midday volume in decline; Brazilian soy crop size importance; GFS weather forecast little changed with slight increase in Argentine rain after Feb 2.
- Short covering has been featured in morning Chicago trade with corn, soybeans and wheat trading higher in moderate volume. The record short ownership position of managed money combined with stable/firm cash basis bids has sparked a bounce. We note that US and S American farmers are tight fisted with cash grain sales, but Brazilian farmers do not have much storage and will be rewarding rallies between $12.40-12.80. Mato Grosso farmers receive less than $9.00/bu and are unprofitable today. However, other than silo bags, there is not much option for storage of recently harvested soybeans. FOB offers from Brazil are leaking lower as the harvest advances due to rising world freight costs. As vessels stack up and demurrage costs grow, merchandisers are loath to bid up for recently cut crops. Rising interior and ocean freight costs are pressuring Brazilian farm profitability.
- Chicago brokers estimate that managed money has bought 1,900 contracts of soyoil, 3,200 contracts of soybeans, and 2,200 contracts of soymeal. In the grains, managed money has bought 900 contracts of corn and 2,800 contracts of wheat.
- We have been asked when will the Argentine dryness be reflected in lower yield potential. Currently, seasonal temperatures and adequate soil moisture is limiting Argentine crop stress and condition ratings are expected to be little changed on Thursday. However, it is next Thursday when ratings could fall and the need for rain will be immediately following next week’s heat/dryness during the opening days of February. It is Argentine weather during February that will be highly important for soybean/corn yields. As it was witnessed last year, February and March weather have become the 2 critical months for crop reproduction.
- The USDA has pegged the 2024 Brazilian soybean crop at 157 million mt while others see the crop between 135-158 million. Never has such a crop size range been noted in late January. We would argue that since a N Brazilian drought is historically rare, few know how to adjust yield/crop size. However, using a soy crop of 146 million mt vs 157 million has big implications for US soy export demand in late summer and early autumn. Research shows that a Brazilian soy crop of 146 million mt would cut Brazilian crop year exports by 11 million mt, which would push 175-225 million bu into the 2024/25 US soybean balance sheets which would keep US 2024/25 soybean end stocks around 320 million bu. This shows why the final Brazilian soy crop size is so important.
- The midday GFS weather forecast is little changed from the overnight forecast with limited rainfall for Argentina over the next 10 days. Temperatures will warm to the 90’s to lower 100’s (after Friday) with searing heat forecast for much of next week. However, the 11–15-day forecast has a few light showers, but nothing meaningful. Soil moisture loss will be acute making the need for Argentine rain important heading into mid-February.
- Regular showers drop across Northern Brazil with 10-day totals of 4-9.00” forecast. Cool temperatures prevail across all of Northern and Eastern Brazil with highs in the mid 70’s to the mid 80’s. The Northern Brazilian rain is slowing harvest but is not yet creating any quality issues.
- End user pricing and less than favourable S American weather has Chicago forming a base. The question for the market is how much of the bearish news has been digested. End users are well aware of erratic world weather patterns and are taking cover. However, the price trend is still down on the charts with key moving averages containing the rally. Choppiness looks to prevail this week with the extended Argentine forecast important thereafter.