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South America’s Crop-Weather Could Spark Market Movement

SA’s weather seen impacting soybean prices the most.

We are approaching the time of the year when grain markets are dominated by news out of South America (SAM), mainly the weather there and the impact it will have on the final yields in Brazil and Argentina. 

This will affect soybean prices the most, but also wheat and corn prices. The carryout of soybeans (and price) will impact how many acres in the Northern Hemisphere are planted and in what mix of wheat/corn/soybeans.

The USDA report on November 9 held a few surprises, with a much larger increase in corn yields than expected. USDA hiked yields to 175.4 bushels per acre, a new record-large corn yield (even larger than last year’s big crop), and a full 3.1 bushels per acre larger than the trade expected. It was up 3.6 bushels per acre from the October report, and resulted in ending stocks being 127 mb larger than expected at 2.487 billion bushels, even after feed and exports each were hiked 75 mb due to larger supplies.  

Soybean yields were basically unchanged at 49.5 bushels per acre, while traders expected a cut to 49.2 bushels per acre, so that resulted in 21 mb larger production than expected.

Ending stocks were up 5 mb from expectations (425 mb vs. 420 expected), and down only 5 mb from October. Since the market expected much friendlier news, the report was considered bearish. It resulted in a downside reversal on charts Thursday (both in corn and soybeans), and turned out to be a negative impact on the grain markets. Since then the market has quieted down, but the negative impacts continued Monday with sharply lower soybean and wheat prices.  

Corn is also suffering technically, testing the new lows of $3.41 December corn, which were formed on November 9 – report day. Actually, with harvest nearing completion and corn at new lows, this might not be a bad place to start taking corn hedges off, and owning corn again. After all, it is the lowest price of the year.  While there isn’t positive news yet to push it higher, the fact that corn prices are so low and basis so bad probably will drive producers to plant less corn in 2018. Why continue to lose money raising corn, when soybeans (and occasionally, HRS wheat) are making small profits?  

We already see private firms increasing their forecast soybean acreage in 2018, and cutting corn acres. We are hearing the same talk from corn producers.  

Crop progress yesterday (11/13) showed that harvest is still catching up to closer to average, with corn now only 8% behind average at 83% harvested.  

Soybeans are 93% harvested, only 2% behind average. Cotton is 64% harvested, equal to average, with sorghum 83% harvested, 4% behind average. Sugar beets are 97% harvested (equal to average), with sunflowers 81% harvested (2% ahead of average). Winter wheat is 95% planted, equal to average and is 84% emerged, 1% ahead of average. Winter wheat conditions are down 1% at 54% G/E, vs. last year’s rating of 59% G/E.  

Soil moisture levels keep expanding, with topsoil now at 76% rated adequate/surplus, up 2% from last week and now well above last year’s 68% rating. Subsoil ratings were also up 2% to 71% adequate/surplus, also above last year’s 69% rating. So we are going into freeze-up with good soil moisture, which is like insurance against drought in 2018.  

South American weather forecasts are similar to yesterday (with a little more rainfall forecast for Argentina in the eight- to 14-day period), with above-normal precip forecast for Brazil the entire 14-day period. Argentina will be below normal precip the next seven days, but then turn above normal for much of Argentina for the eight- to 14-day period (an increase in precip from yesterday). Temps are about normal for all of South America for the entire 14-day forecast.    

U.S. weather is forecast similar to yesterday, and to have below-normal precip for the entire 14-day period, with temps below normal for the eastern U.S. for all 14 days, but above normal for the most part for the western U.S. This is a good forecast to finish the corn and soybean harvest across the country.

As we transition to the 2018 crop year, first with attention to South American weather and then this spring to the northern Hemisphere, we have relatively comfortable stocks of virtually all grains. That will lead to a fairly dull winter, unless something exciting develops in SAM.  

Ray Grabanski can be reached at raygrabanski@progressiveag.com.  
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Ray Grabanski is President of Progressive Ag Marketing, Inc., the top Ranked marketing firm in the country the past 8 years.  See http://www.progressiveag.com for rankings and link to data from Top
Producer Magazine and Agweb.com.

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