Brazil Dryness, Black Swans and the Turnip Truck, Welcome to 2019


January represents a time when it is natural to shift gears. There is something about the change of the calendar year, which does that. However, one of my family member who is a historian often reminds me that the new year is really in March. He tells me that the Calendar Act of 1751 changed New Years day in Britain and the Dominions from March 25 of January 1st. So if you really think about it, isn’t it also so artificial?

I’m hoping that 2019 be a better year with a little bit less artificial excitement that we experienced in 2018. As we move into January the political dynamics are changing especially in United States. The new Democratic Congress in the United States will likely temper the movements of the American President. At the present time, we have a government shutdown based on the funding of the southern border wall. It’s very difficult for a Canadian to understand, but from a farm perspective it may mean that the big USDA final report on January 11th gets delayed.

Needless to say, the USDA final report often serves as a litmus test for moving on as well. It can often define price movement during the month of January and is often explosive on the report today. At the present time USDA corn yield stands at 178.9 bushels per acre, with soybean yield standing at 52.1 bushels per acre. I had always expected these yields to possibly drop come January simply based on the last few weeks of the American harvest. However, like I’ve said a million times, nobody knows what the futures market will do. The focus now and post report will be growing conditions in South America.

Those conditions in Brazil are becoming increasingly dry. Market weather factors have turned bullish, as a hot dry pattern has moved into the south-central part of Brazil, with temperatures approximately 10 degrees above normal. Expected rains are not expected to alleviate this and crop estimates have been dropping. However, as you all know, soybeans can be the great liars, even in the tropics. They like slightly drying conditions and is only one rain away from it all being history. We’ve all been here before, but at least in the last few years, Brazil production has been rising above expectations. To even think of it going the other way, seems counter intuitive.

Daily market intelligence is key to any judgments on South American soybean conditions. You say what? How are we suppose to know what is going on in the fields there? It’s a fair point, but keep in mind it’s getting a bit old. Our own DTN team does an excellent job keeping us abreast of weather factors, which may affect the Brazil crop. We have a morning and evening market commentary, which is excellent along with regular commentary from South America. Aside from that, you have to dig deeper, and for that I use twitter.

Twitter is not for everybody, but for me its good for market intelligence. I talk to Brazil, Argentinian and Uruguayan farmers often. They weigh in sometimes with broken English on crop conditions and what they are hearing. Drought and heat are affecting some of their fields now. They send me pictures, in season; I send them the same from my fields. At the end of the day, it simply adds to my market intelligence, adding up the market factors to help me market my grain. It can be helpful for everyone reading this.

In 2018 we found out in a big way, that geopolitics matters when it comes to our grain prices. The initiation of the US China trade war was bloody for prices, with soybeans retreating aggressively thru late summer. As it stands now, the American and Chinese have pledged themselves to get a trade deal by March, which may or may not happen. Clearly markets will react to any renewed deal. However, we all know that insatiable Chinese market for US soybeans pre 2018 is gone. People have long memories, and anybody expecting any different maybe disappointed.

The South American thing and the geopolitics thing are big as we go into 2019, but US crop acres will be too. The conventional wisdom is we’ll see a lot less US soybean acres in 2019. USDA has already estimated an expectation of 2019 corn acres at 92 million and soybeans at 82.56 million, about 6 million acres less than 2018. However with Brazil soybeans apparently “burning up”, how might this change toward spring?

There is so much more, but that sets the stage for futures market action into 2019. As the year grows older, there surely will be many more things, maybe even a black swan. Those unexpected things can sometimes tip the turnip truck over. In 2019, its not a question of if, but more likely when.