You are here

SA drought; Beginning or end

The southern South American (SAM) drought has extended itself another week, with the predictable response by the market to rally to new weekly highs this week in both corn and soybeans.  The dry weather in South America comes on the heels of wet weather in December that delayed planting there for awhile.  The dry weather to end December and start January was critical to allow these wet areas to get the crop planted prior to the end of the planting season.  Most of the work got done, albeit later than normal, and the season was off to a relatively good start for most of South America.

The shift to wetter weather in northern Brazil in January and the drier weather in southern SAM was initially considered beneficial to the crop.  

Private crop estimates of the Brazilian crop have gone up, not down, in January as the most recent private estimates are showing even larger record large Brazilian crop production.  The dry weather in southern Brazil is causing crop losses, but the wetter weather in northern Brazil is pushing yields there back up to high levels - much above last year's drought reduced crop.  

The key question right now is how much damage has occurred in Argentina, where the dry weather has persisted through most of January?  Soil moisture levels there to start the month were saturated, but the past four weeks of dry weather has meant an about face for these areas.  Basically, as we end the month of January, there is little stored soil moisture left in Argentine soils.  

The next seven days to start February include relatively dry weather continuing, with below normal precip levels forecast for the coming seven days.  However, there is some rain in the forecast, more than the previous few weeks, and it will help to prevent rapid yield loss in these areas.  Also, temps through most of January were not high, and just this week have risen to levels where they are now above to much above normal in Argentina.  This is a new development, and could adversely harm Argentine yield prospects as we enter February.  

On the other hand, today's 8-14 day forecast puts wetter weather back into the Argentine forecast, with some heavy rains possible in some areas.  While the 8-14 day forecast is historically not very accurate, this forecast has been there for the past 3 days - indicating a stability to the forecast that is pervasive.  

Will Argentina turn wet in February, a "just in time" development for southern SAM?  

Or, will we once again have a drought problem in SAM, only this time instead of northern Brazil having the drought, the southern SAM growers, especially Argentina, will suffer from the drought effects?

The month of February will be critically important to the outlook of the marketplace for corn and soybeans.  Currently, the forecast indicates a change in weather patterns.  But that forecast is subject to change 2x/day, and it could change by next week easily.

Technically, corn and soybeans are at the upper end of the recent trading range, with soybeans pushing up against resistance at $15 (and breaking above the 14.50 resistance mark today).  Will the change in weather pattern correspond to the testing of the resistance levels on technical charts?  We should have our answer in the coming week, with potential downside reversals on watch for the next major sell signal.  

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 

  This material has been prepared by a sales or trading employee or agent of Progressive Ag Marketing, Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Progressive Ag Marketing's Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication 

in making trading decisions. 

-----------

DISTRIBUTION IN SOME JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS 

COMMUNICATION INDIRECTLY AND SOLICITATIONS ARE PROHIBITED IN YOUR JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED A SOLICITATION. 

The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and 

statistical services and other sources that Progressive Ag Marketing believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

Read more about