Weather pattern change in South America?
Today's weather forecast is a far change from just a week ago, when temps were above normal for Argentina and southern Brazil and precip amounts for the next 14 days were also less than normal. Today, that forecast has done an about face and now we have a wet forecast with cooler than normal temps for the entire 14 day period. Is this a weather pattern change from the dry/warm pattern in southern SAM for most of January thus far?
If so, it would represent a very timely change in weather for sure for southern SAM, as this is just at the point where the reproductive stage for the main crop production comes into play. That is very important, as it could mean the difference of 100 mb of soybean production or more, and perhaps the same amount or more for corn production.
These are important times for South American production, as a bumper south American crop versus one below average is a great change to the fundamentals of the market. In soybeans, this is especially true as South America is the great producer of soybeans, with Brazil producing as much as the US alone, and Argentina filling in a major portion of production as well.
With US ending stocks of soybeans tight at only 150 mb, and South American production the other major supplier of soybeans to export to China, this is a very important fundamental to the soybean market. If South America produces an extra 100 to 200 mb of soybean production, it will effectively raise the ending stocks of soybeans in the world to a more comfortable level. With hefty Chinese purchases of US soybeans so far this year, that could lead to cancellations of US soybean purchases, and the rebooking of these soybeans from a South American origin. That would ease the ending stocks picture for US soybeans, which at only 150 mb is already quite tight.
But an extra 100 mb of South American production could add to the ending stocks carryout of the US/SAM ending stocks combined such that it is just like adding 100 mb of ending stocks to the US. It might be the difference between $11 soybeans and $13 soybeans, as the change in ending stocks could be enough to change the production estimates significantly.
Actually, Brazilian production might be better than expected as temps have been cooler than normal almost all year. That lessens the chance of crop stress even in areas where precip was less than normal as the lesser temps in this warm season production area might increase production prospects. It could be surprising how large the production is considering the ideal temperatures for much of Brazil during most of the production season.
Now with temps cooling in Argentina at an opportune time, even Argentine production could surprise people in spite of the 3 week stress that has been put on crops there. Sometimes it is surprising what soybeans can do with a little crop stress (but not too much) in a season.
Think back to the US weather pattern of warm and dry during August and early September of this year. While that did stress crops, USDA ended up at 43.3 bu/acre soybeans for a final soybean crop estimate, up over 2 bu/acre from their September estimate. That was a huge change of an upward adjustment from September to January (in just 2 reports), but USDA made those changes due to surprisingly good yields. That in spite of stress on crops in August and early September!