- HEADLINES: Morning rally fades on US dollar strength; NOPA soy crush record large in December.
- We would like to take the unusual step of including (verbatim) a Reuters report released today as follows:
- SAO PAULO, Jan 16 (Reuters) - An association representing thousands of grain farmers in Brazil projects production of 135 million metric tons of soybeans in the 2023/24 cycle, according to a statement on Tuesday that mentioned extreme weather as hurting the outlook for the crop as the season progresses.
- Aprosoja Brasil’s estimate is lower than private forecasters’ projections that start at around 143 million tons of production.
- It is also way below Brazilian crop agency CONAB’s expectations of 155 million tons of production and a USDA projection putting the crop at 157 million tons in the world’s largest supplier of soybeans.
- Both CONAB and the USDA released their figures last week.
- “The publication of data that does not match reality has caused a downward trend in prices,” Aprosoja Brasil said. “Farmers, in addition to having reduced yields, have to deal with prices that are incompatible with reality.”
- The Brazilian farmer group said its estimate is based on information collected from Aprosoja branches in 15 states.
- Benchmark soy contracts traded in Chicago reflect Brazil’s crop outlook but also factor in expectations of much larger soy harvests in Rio Grande do Sul state and Brazil’s neighbor Argentina, where drought slashed output in 2023.
- Aprosoja Brasil said water stress in Center-Western states such as Mato Grosso, Goias and Mato Grosso do Sul and the excess rainfall in certain areas of these same states are disrupting grain harvesting that is underway. It said this may lead to even greater losses to farmers this year.
- “There are also reports from farmers in the south of the country, mainly in the state of Parana, who suffered from excessive rainfall at the beginning of planting and are now facing a lack of rain in areas where soybeans are in the reproductive phase, which compromises crop yields,” Aprosoja Brasil said.
- Due to climate risk, Aprosoja Brasil said its crop forecast could be revised lower if the weather does not improve.
- This report, if proved correct, has the potential to ignite a significant move higher.
- Chicago values are mixed at midday, with soybeans and meal slightly higher, wheat down 9-17 cents on US dollar strength and corn caught in between. The speculative community so far has been hesitant to add to large existing short positions in row crop markets but is adding to bearish wheat bets following short covering in that market in late Dec/early Jan. March Chicago wheat’s inability to trade above its 20 and 50-day moving averages last week is noted. March Paris milling wheat has fallen to newer contract lows, and a continuous basis is mirroring settlements at/near Sep and Dec expiration.
- NOPA crush in December was an all-time record 193.5 million bu, slightly above trade expectations and up 16 million (9%) from Dec 2022. Sep-Dec NOPA crush sits at 738 million bu, up 6% year on year, vs. USDA’s projected annual increase of just 4%. Work suggests USDA’s annual forecast is 40-50 million bu too low, and while spring/summer export disappearance will be a function of S American production and cash prices there, domestic soybean consumption will be expanding into late 2024 as new plants are brought online.
- The spot futures-based crush margin has stabilised at $0.90-1.00/bu. Margins in the Central Midwest cash market remains perched above $2.00/bu. Incentive to expand remains in place.
- Soyoil stocks on Dec 31 totalled 1.36 billion lbs, also slightly above trade guesses and up 146 million lbs from late November. Builds in oil stocks between Oct and Dec are rather seasonal in nature. NOPA oil stocks have stabilised at 22-26% below year-ago levels, though we note soyoil disappearance in December was a record for the month by 148 million lbs. Key in Q1 is whether renewable diesel plants boost output following a drop in stocks in mid-autumn. Work maintains that higher oil prices are needed to sustain enlarged soy crush in the long run.
- The chaotic nature of S American crop estimates continues as Argentine estimates approach or reach a new record. The Rosario exchange this morning indicated that a 60+ million mt crop, vs. USDA’s projected 55, is possible. Favourable late Jan/Feb weather is needed. Brazilian corn and soy estimates continue to erode, with respected agronomists now projected a sub-150 million mt soy crop, vs. USDA’s 157, and a Brazilian corn crop of 115, vs. USDA’s 127. IMEA in Mato Grosso estimates soy production there at 39 million mt, vs. 45 last year. IMEA estimates Mato Grosso’s safrinha corn production at 43.8 million mt, vs. a record 52.5 las year. Deral in Parana this morning pegged soy good/excellent ratings at 64%, vs. 81% a year ago in mid-Jan.
- Gains in Argentina, assuming normal weather, are still offsetting but Brazilian soy production loss of 15-17 million mt relative to initial expectations and Brazilian corn production loss of 20-22 million mt from last year are important.
- The midday GFS weather forecast is drier in Mato Grosso and Mato Grosso do Sul in the 11–15-day period, with short-term concern still centred on the recent lack of precipitation and heat in MGDS in Parana. The overall pattern keeps below normal rain in place across central and northern Brazil into Jan 24. A more active pattern of rain resumes thereafter. The GFS forecast is somewhat dry in Argentina throughout the next two weeks, which is not an issue today but needs monitoring.
- Momentum remains negative today as bond markets become less optimistic over near-term lending rate cuts and the US dollar trades above initial chart resistance. A more two-sided market is forecast as Brazil’s soy harvest expands and as corn, soybeans and meal remain oversold