- HEADLINES: Chicago sags on improved Brazilian weather, US dollar recovery.
- Raw material markets across the board are sharply lower at midday as ag futures react to recent and upcoming soaking rainfall across the driest areas of Brazil, and as energy markets reverse morning strength amid a recovery in the US dollar index. The US$ at midday is up 0.7% and a test of initial chart-based resistance lies ahead. Spot WTI crude is down $0.95/barrel at $70.70. Strength in the dollar has weighed on dollar-based corn and soy prices in Brazil, while spot Paris milling wheat sheds premium despite weakness in the €uro. Wheat markets overall have shrugged off the rise in intensity of Russian and Ukrainian attacks, and the spark needed to encourage speculative short covering is absent in the first session of 2024. Still-thin volume has exacerbated flat price movement. FAS failed to announce any new US export business this morning.
- The market’s perception of Brazilian production is stabilising, though at 150-153 million mt based on recent private/agronomist estimates.
- Assuming normal weather/trend yields in Argentina and Paraguay, and a Brazilian crop of 150, total S American production in 2024 will be up 14 million mt year on year and an all-time record 208 million mt. However, global soy demand growth remains intact, and the loss of 14-15 million mt of Brazilian production relative to initial forecasts is important. Note also that a Brazilian crop of 150 million mt is down 10 million from last year, which raises the burden on Argentine exports of raw beans.
- Argentine production recovers substantially, but whether the Argentine producer opts to sell newly harvested supply is a big deal. Argentine producers up till now have been strong holders of crops amid rampant inflation. It is difficult to know how Argentina’s coming economic experiment changes the flow of grain/soy from the farm to the international market.
- US export inspections in the week ending Dec 28 included 22 million bu of corn, vs. 48 million the previous week, 10 million bu of wheat, vs. 17 million the previous week, and 35 million bu of soybeans, vs. 41 million the previous week. All were within trade expectations.
- For their respective crop years to date, the US has inspected for export 470 million bu of corn, up 24% year on year, 855 million bu of soybeans, down 19% and 354 million bu of wheat, also down 19% from late Dec 2022. We would reiterate the pace of physical soy loadings retreats late December onward, while corn and wheat export programs expand in winter and spring.
- The midday GFS weather forecast is wetter in Northern Brazil in the 11-15 day period and keeps a pattern of near daily showers in place there into Jan 17. The 10-day outlook is consistent with the morning solution in advertising cumulative rainfall of 3-5” in Mato Grosso, Goias, Minas Gerais and Bahia into Jan 12, with heavier totals possible parts of central and eastern Mato Grosso. A meaningful boost in soil moisture lies ahead. Near normal rain is offered to Argentina, though pockets of dryness are in development. Argentine weather becomes critical to both corn and soy yield potential between mid-Jan and late February.
- Weather premium is being shed while macro guidance leans a bit negative on Tuesday, and chart patterns fail to inspire new speculative buying/short covering. A recovery is forecast on Wednesday. Actual Brazilian soy yields, as well as the duration of this year’s rainy season, matter most in the long run.