- HEADLINES: Markets digest CONAB report then fade; Argentine crop health worsens.
- Ukraine stated that Russian military drills on the Black Sea make shipping virtually impossible in an escalation of invasion tensions across the area. The duration of the Russian military drills is unknown, but invasion concern keeps rising and will be closely monitored heading into the weekend.
- CONAB released their 2022 soybean/corn crop estimates. CONAB shocked the industry with a soybean crop estimate of 125.5 million mt, down a massive 15 million from January. And a corn crop estimate of 112.3 million mt, was down from 112.9 million. Such a small soybean crop produces the need for acute world demand rationing and a potential test of the historical high at $17.95 spot Chicago futures.
- Chicago futures are mixed at midday following new rally highs this morning amid CONAB’s massive cut to Brazilian soy production. The market has now seen a sub-130 million mt Brazilian soy crop actually printed by a government agency, and so a sort of ‘buy the rumour sell the fact’ mentality has weighed on soy values since mid-morning. This along with modestly weakening fob soybean basis in Brazil could make rallies above $16.30, spot, more laboured. But everyone should know that a Brazilian soy crop of 125 million mt along with ongoing dryness in Argentina leaves an incredible (450+ million bu) hole in the USDA’s current global soy trade matrix, which will only be solved by higher prices. We note that the spot futures-based soy crush margin this morning is calculated at $1.35/bu. This compares to $0.75/bu a year ago in mid-Feb.
- Soybean supply rationing is needed in the long run, even amid normal Midwest weather this summer. Corn rationing will also be needed, but the market’s perception of S American corn production hinges on Feb-Apr weather.
- Spot crude is up $1.60 at $91.25.
- US exporters through the week ending Feb 3 sold 23 million bu of corn, vs. 46 million the previous week, 3 million bu of wheat, vs. 2 million the prior week and a sizable 59 million bu of soybeans, vs. 40 million the prior week. Wheat sales were below expectations, while corn and soybeans were in line. The market has been aware of the flood of old crop soybean demand via a string of daily sales announcements. China’s 375,000 mt cancellation of prior corn purchases were also known. For their respective crop years to date, the US has sold 1,800 million bu of corn, down 21% from last year but a near record 74% of the USDA’s annual forecast. 2021/22 US soy commitments sit at 1,720 million bu, down 20% from last year. Wheat commitments total 637 million bu, down 25%.
- Exporters sold another 233,700 mt of soybeans to unknown destinations this million. Weekly sales in the weeks ending Feb 10 and Feb 17 are projected to total 35-45 million bu, which places US soy export commitments as of mid-Feb at 88% of the USDA’s crop year forecast. Additional old crop demand lies ahead as US fob offers remain competitive with Brazilian origin for shipment.
- We also reiterate that the bulk of the coming shift in global soybean demand will occur in a new crop position. It is 2022/23 US soy stocks that become untenably tight barring planted area expansion of 3 million acres, which becomes bullish corn due to corn acreage contraction. Solving current supply issues require record production in both hemispheres over the next 12 months.
- This week’s drought monitor showed another modest expansion in KS, NE and IA. Arid and warming weather is forecast across the Southern and Western Plains throughout the next two weeks.
- The midday GFS weather forecast is consistent with the overnight run. A stagnant pattern of excessive rainfall continues across Central and Northern Brazil, with 10-day accumulation upward of 5-7” projected in Mato Grosso, Goias and Minas Gerais. Net drying continues indefinitely across Central/North Argentina, Southern Brazil and Paraguay. The Buenos Aires Grain Exchange this morning cut its Argentine corn production estimate to 51 million mt, vs. USDA’s 54. Argentine soil moisture is the immediate concern, but ongoing extreme drought in Parana and pockets of Mato Grosso do Sul will be an issue for safrinha corn yields should it continue into March. S American weather is viewed as threatening.
- CONAB’s rapid trimming of Brazilian soy yields will trigger a more volatile marketplace moving forward. However, Argentine soy and corn crop health continues to erode, and this likely strips another 4-6 million mt from S American corn and soy production. Breaks are buying opportunities as supply focus shifts to Argentina.