Market eyes improving South America weather
South American (SAM) weather has improved significantly over the past week, with a turn from warm/dry in southern production areas of southern Brazil and Argentina to a cool/wet forecast for the coming two weeks. That is a major change in the forecast for SAM at a critical time in their development, especially since January was warm and dry for Argentina (causing a cut in Argentine production in the February USDA report; see summary below). The last half of January was also warm and dry for southern Brazil, and continued for a week into February as well.
But now SAM weather forecasts remain cool and wet for the coming 14 days that will likely lead to an improvement in crop conditions in southern South America, especially Argentina and southern Brazil. There will remain a small pocket of dry weather in east-central Brazil, but the rest of the country will enjoy nearly perfect weather for filling soybean pods. Overall, that is negative the market as weather is turning back to more ideal for South America at a critical time.
This is likely to lead to further hikes in Brazilian production, and will likely end the cuts to Argentine production estimates so that overall SAM production estimates will probably grow in future reports.
In Monday's USDA February report, they raised SAM soybean production 0.5 mmt by hiking Brazil production 1 mmt and lowering Argentina's by 0.5 mmt. As we had said in the last month, northern Brazil production conditions have been ideal with cool and wet weather, while southern Brazil and Argentina had some crop stress that likely hurt yields. In soybeans, USDA agreed and raised the SAM production prospects. In corn, though, USDA left Brazil corn unchanged at 70 mmt, but dropped Argentine corn by 1 mmt to 24 mmt for a net cut of 1 mmt. That was friendly the corn market, but it pressured soybeans along with the improving SAM forecast.
USDA's U.S. changes to S/D table included hikes in exports of 150 mb corn, 50 mb wheat, and 15 mb soybeans. That cut corn and wheat ending stocks like amounts (which was friendly), but USDA hiked soybean imports 5 mb and cut residual 10 mb to leave ending stocks there unchanged. World corn ending stocks were cut likewise as U.S. numbers, while soybean ending stocks were hiked 0.6 mmt (about the SAM increase in production), while wheat was cut 1 mmt. Overall, that left the soybean market 6c lower Monday, corn down 1c, and wheat up 7-13c.
The market focus continues to be on South American weather as it should be this time of year, but also is focused on the demand picture for U.S. exports. Lately they continue to be outstanding, which is why USDA took the liberty of raising U.S. export projections in the February report. This continues to play out in the market, with ending stocks of corn being reduced again to below 1.5 billion bushels, back down to below the five-year average of stocks/use ratios. That is supporting corn prices, and the upside daily reversal formed in the January report day continues to provide support to the market. Corn prices continue to rise on this base of technical support, and that is bullish the market.