Argentina turns wet
Argentine weather has turned wet in the next 7 day forecast, and USDA barely cut the Argentine crop in February due to the drought they suffered since Christmas in that country, only choosing to cut soybean production 1 mmt from last month. USDA also hiked Brazil production the same 1 mmt, so net the SAM production forecast for soybeans was left unchanged from last month.
That was in spite of very dry conditions in Argentina, and compared to up to 4 mmt cuts in other private estimates. However, the Argentine forecast turned wet this week in a 'just in time' fashion to save some of the production losses that could have resulted. That change in the weather forecast for Argentina combined with USDA's decision to leave SAM production forecasts unchanged have pushed prices sharply lower this past week. Soybeans have dropped from their resistance price of nearly $15, to a price of almost $14 for nearly a drop of $1 in the nearby futures.
Distant futures have also dropped, leaving the new crop prices below $13 for the first time in a long time. New recent lows in new crop prices of soybeans and corn leaves these markets locked in downtrends, and that is keeping prices on the defensive across the grain board.
Technically, nearby soybeans formed a weekly downside reversal last week, and the pressure is still on for soybeans this week as we are seeing follow through weakness. In worse news for soybeans, it looks like we have completed a head and shoulders top in weekly charts, and the projected lows could run all the way down to the $11 area on the nearby charts! That is long ways down from current price levels! It may take until late spring to get that low, but the market likely has some targets there that it will hit, given the right type of South American (SAM) weather.
We will need to make catch up sales to the 100% level for 2012, 2013, 2014, and 2015 crops and even consider piling in some 2016 crop sales as well for good measure. As this kind of price decline will be painful without some hedges in place to protect against it.
Weekly corn charts have support at near term levels of around $6.60, but if those levels fail we open up downside price risk to the spring lows last year of $5.50 or so, where support levels lie in the near term. With improving SAM weather, these targets are also in sight.
And wheat is basically 'corn2', as the wheat fundamentals are showing plentiful supplies of wheat, and that leaves wheat priced as a feed grain right now, as corn supplies are still very tight across the 2012/13 supply/demand balance sheets due to the extremely poor US crop in 2012.
So price outlooks for grains turned nastily negative last week on Friday, and have seen some terrific follow through weakness so far this week. Catching the next wave of higher prices to make catch up sales of crops will be very important to avoid going into what could be a precipitous drop in prices over the next few months. No where will that drop be more pronounced than in soybeans, though, which challenged the recent highs, but failed, in its past rally attempt. A lot of pressure was put on the SAM producer to 'make up' for the lack of production in the US, and it looks like the SAM producer will be able to come through after some threat to the Argentine crop. But especially true is that Brazil came up big in this year's production, as very large yields are being reported in northern areas, and southern areas recently have received rain that is shoring up their production prospects. So ag hedgers, dig in, for the long haul, as there is likely to be significant drops in ag commodities in the near term.