Dry Conditions Impact Brazil Crops, Where Are the Market Bulls?

It is cold in southwestern Ontario with some flooding taking place in my local area. February can still be very wintry and I’m sure there is lots of it left. This coming week I will be flying to Ottawa to speak on the grain markets at the Eastern Ontario Crop Conference. I hope the wintry mix of weather that is often predicted this time of year lets those airplanes fly. Cropping season seems so far away.

That is not the case in South America, where the southern summer has been a bit difficult for my Brazilian and Argentinian friends. In short, Brazil has suffered from some hot dry weather, which will reduce the crop size, and too much rain has impacted my Argentinian friends. I get a birds eye view of some of those things through my contacts on twitter.

My Brazilian farming friend Sergio, who goes by the twitter handle of @StaLuziaEsteio gives me constant reminders of the challenges he faces in his soybean fields in Brazil. I knew the conditions were hot and dry there, so I checked in last week to ask him how things were. He shot back by telling me that he had a terrible crop which was only going to go about 35 bpa, where last year he got 58 bushels per acre. He might’ve been referring to bags per acre, but I think you get the picture. Sergio is unhappy with his soybean yield on his Brazilian farm this year. I’m sure he’s not alone.

It didn’t take long for that conversation to get a little bit of traction. For instance, we had other Brazilian farmers chime in telling me that they had a pretty good crop. It is unfortunate that our agricultural economics makes it so one farmer in one region has to have misfortune for the other farmer in the other region to have good fortune. However, that’s just a long story, but it seems the misfortune in the Brazilian soybean fields has tempered some of the bearish soybean narrative we’ve had since last July. They are still harvesting down there and when you include the Argentinian prospects, it’s likely that we’ll have more soybeans from South America on the world stage than we did last year even with the problems in Brazil.

Of course with that as a backdrop, tomorrow on February 8th we’ll find out from USDA what the “final” numbers are on the 2018 crop, of course, this was postponed because of the US government shutdown. The last we checked with the USDA they were still expecting 122 MMT of Brazilian soybeans. Private estimates from South America have put that as low as 112 MMT. The Argentinian number is supposedly near 55.2 MMT. It seems like an old movie now, but many in the trade expect lower American final yields for the 2018 crop. The delay seems to taken a little bit of drama out of the final numbers.

DTN’s contributing analyst Joel Karlin in his Fundamentally Speaking Blog, wrote about the combined Brazil Argentina soybean production from the December to the June WASDE report versus the percent change in the price of November soybean futures from December 1 to the following July 1st. It was an interesting way at looking at soybean prices, and generally showed lower South American soybean production years, soybean futures prices generally responded very positively. However, in 2019 this is not quite as acute mainly because of the issues surrounding the United States and Chinese trade war regarding soybeans. Those onerous ending stocks in the United States are still out for the world to see.

That puts the nearby soybean futures prices of $9.13 a far cry from the $10.29 last May 30th, but still rather respectable compared to some of the harvest lows. The November 2019 soybean contract is currently at $9.55, it would be nice to get some type of market surprise to see $10 again before July. However, it is really difficult to know what will be in that USDA report tomorrow. It will be incredibly interesting to see the quarterly stocks number as of December 1 in the United States. That will at least tell us how much demand there was for physical grains late last fall. It also might set up the market for some type of nice surprise.

Aside from USDA this week we had President Trump say that he would not be meeting with the Chinese President before the March 1st deadline for a trade settlement. There was also a balloon floated that the US China trade deadline would be extended in an attempt to get a deal. As you can quite imagine the soybean market continued its frenetic nature based on the China United States announcements of the day. Wouldn’t it be nice to get back to normal, whatever that is? The USDA will start setting the table for that tomorrow. Let’s hope there are some market bulls out there somewhere.