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Soybean Market Eyes Argentina’s Weather

South America weather turns wetter.

The market attention has been slowly shifting to South America, where a growing crop is just emerging and planting is finishing up. 

The weather the next few months will determine what kind of crop yield occurs in South America, and that will likely impact price direction of most grains during that time.  

In the US, crop progress is slowly winding down, with corn harvest at 95% complete nationally, now just 3% behind normal. Cotton is 79% harvested (1% behind normal), sorghum 95% harvested (1% behind normal), sunflowers 93% harvested (equal to average), and winter wheat 92% emerged. 

Winter wheat ratings dropped another 2% this week to 50% G/E, now a full 8% behind last year's 58% rating. So the dry weather recently, while allowing harvest to finish up in good conditions, is reducing soil moisture in winter wheat country and diminishing yield prospects in winter wheat country.  

Topsoil moisture levels are also being depleted, with topsoil rated adequate/surplus down 4% this week to 69%, now just 1% better than last year at this time. Subsoil moisture levels also declined 3% to 67% adequate/surplus, now 1% below last year's 68% rating at this time. So the dry weather is depleting soil moisture levels as we go into next year. Overall, producers not finished with harvest and battling wet soil conditions probably appreciate the drying weather, but it is having a negative impact on winter wheat crops and stored soil-moisture reserves.  

Weekly export inspections announced yesterday were disappointing for all grains at only 25.1 mb corn, 58 mb soybeans, and 12.7 mb wheat.  So far, corn exports are down 42% from last year (projected to drop 16%), soybeans down 14% (projected +3%), and wheat down 6% (projected down 5%). So exports, so far this year, are disappointing, especially for corn and soybeans at this point. That could be why prices sagged for wheat and corn yesterday so badly, while soybeans were supported by the worsening forecast for SAM (it became less attractive over the weekend).  

Weather forecasts in South America are a bit wetter today, especially in Argentina for the next 14 days. Now precip is forecast above normal in Argentina the next seven days, with the eight- to 14-day forecast for more precip, as well (closer to average rather than below average). That is slightly negative and is pressuring soybeans today. Temps are still forecast mostly normal across both Argentina and Brazil for the next 14 days, which keeps the forecast relatively nonthreatening.  

U.S. weather remains quite warm for the next seven days, and then it turns considerably colder for the eight- to 14-day forecast. Precip is below normal for the next seven days across the U.S., but then the southern half of the U.S. had more precip forecast for the eight- to 14-day period. U.S. weather is becoming less important all the time, as most crops are 95% harvested or more. Winter wheat could be impacted some, but usually spring thaw is a time when winter wheat can be impacted more.

So while the U.S. weather is becoming less and less important as we finish up harvest of U.S. crops for 2017, South American weather is becoming more and more important to the market as the 2018 South American crop is being determined.  

Relatively large stocks of grain in the world and U.S. have already put a damper on prices, as we are at relatively low levels right now. In fact, if we are not at a bottom right now in corn and wheat prices, we have to be close because there is virtually no farmer in the world who can produce these grains at current prices. Soybeans have a little bit better price now than the other two grains, but then again soybeans have a buyer (China) that seems to have an insatiable appetite for soybeans. Whether or not that translates into higher prices for soybeans from here is another question.

Agriculture also is experiencing a bit of a hangover from the high prices of 2007-2014, and the current price sag is perhaps a product of that high flying time. So while things could remain somewhat depressed the next few years based on the high stocks of grains, after harvesting a record yielding corn crop and a #2 high-yielding soybean crop in 2017, its likely prices are closer to the bottom for both major crops than a top.

So patience in marketing decisions at this point (finishing harvest of large crops are relatively cheap price levels) might be a virtue.

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. 

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