- HEADLINES: Markets extract weather premium ahead of south morning pattern shift; Duration of Argentine rain critical.
- Chicago ag markets are mixed at midday, with weather premium being extracted from corn and soy while long row crop/short wheat spreads are unwound. The midday GFS weather forecast keeps intact needed rainfall across Northern Argentina and allows this wet pattern to reach southward into Argentina’s primary corn and soy production regions Jan 21-25. Whether a lasting pattern change occurs in S America will be key to Chicago price determination over the next 10 days.
- Yet, crops in Argentina and parts of Paraguay/S Brazil will labour under extreme heat this week. Near-term forecasts have trended warmer over the weekend, with max temperatures in key areas of Central Argentina on Wed to reach 108-110 degrees. Massive soil moisture loss lies ahead, and so a lasting period of active rainfall, beyond just the next two weeks, will be needed in Argentina/S Brazil to replace moisture lost over the next 4-5 days.
- Our overarching message is that volatility throughout the next 6-7 months will likely be the highest in years as every ton of production lost or gained has a material impact on global supply and demand.
- The market’s perception today is one of yield stabilisation in later planted fields in S America. The return of heat/dryness in Argentina/S Brazil in Feb triggers the intense/rapid addition of premium. Our longer-term outlook remains bullish given S American crop losses to date but buying and rallies and selling breaks will be fraught with increased risk.
- US export inspections through the week ending Jan 6 featured 40.3 million bu, with inspections the prior week revised upward 6 million bu (30%) to 30 million bu. Soybean inspections were 33 million bu, though the prior week shipments were raised 16 million bu (35%) to 59 million bu. Wheat inspections were a weak 9 million bu, unchanged on the previous week. Recall Census corn exports have exceeded FGIS numbers by 20-44 million bu since Sep. There is no evidence to suggest USDA lowers annual US corn and soy export forecasts in their Jan release on Wednesday.
- We hear of China buying US soybean basis contracts for Sep following the rally in S American premiums. China’s primary concern is that Brazilian exports are shut down completely in late summer/early autumn as the new crop harvest is exhausted. The loss of S American corn and soy yield/production will indeed be felt in both old and new crop US balance sheets. Brazilian exporters in recent years have flooded the global soy market with supply beginning in March. However, the duration of Brazilian soy export dominance hinges entirely upon crop size. CONAB in its Jan report on Tuesday is expected to reduce Brazilian soy production by 2-3 million mt. Recall CONAB’s soy estimate in Dec was 142.8 million mt, vs. USDA’s 144.
- Even a modest trimming of soybean production from CONAB places crop size there dangerously close to last year, which in the context of record global soy/oilseed consumption underpins the Chicago market into spring.
- The midday GFS weather forecast is similar to the morning run in keeping soaking rainfall in Argentina confined to a narrow band covering the far northern section of corn/soy production. This rain will no doubt be welcomed, but key areas of Cordoba and Buenos Aires will see little/no rain over the next 10 days. The GFS forecast remains consistent in expanding rainfall in Southern and Central Argentina in 11-15 day period, but this must be pulled into the nearby period before confidence in its arrival is increased. A lasting period of dry weather occurs across Central and Northern Brazil beginning Sat/Sun, which allows soybean harvesting to accelerate there.
- Market focus centres solely on whether a lasting period of rainfall occurs in Argentina/S Brazil beginning next week. The S American weather market is in full focus, and the transition to N Hemisphere production starts quickly thereafter with Delta corn seeding to commence in late Feb. Big markets lie ahead.