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Drought threatens South American crops

Grains have had a strong rally recently, rallying about 70c in corn the past two weeks and showing some life in an otherwise dead market.  We just recently ran to new lows in corn, soybeans, and wheat, so this recent runup could just be the recovery in a bear market (at which prices should turn lower again shortly), or it could be the start of something real and a sign that the bottoms are in (IF SAM weather remains dry).  

It's a critical time of the growing season for SAM producers, with corn just before pollination (essentially about July 1 in comparable US seasons).  If corn is made in July in the US, the corn crop is made in January in SAM.  This is especially critical for Argentina, which has suffered under about 3 weeks of dry weather.  Fortunately to this point it was accompanied by cool weather, so the damage done to date has not been too severe yet.  But a few more weeks of this kind of weather, and the corn crop could have significant damage.  So the corn market is placing a premium on corn prices for now for weather in SAM.

The soybean crop is typically made in August in the US when they pod, so a similar critical time frame for SAM would be February. There is still time for weather to recover in SAM, or for it to get worse (if rain doesn't fall the next 2 months).  So the jury is still out for soybeans, but the market has been putting a premium in for adverse SAM weather in soybeans as well.  We'll just have to wait and see if this bounce lasts and is the start of a bull market, or is just another decent recovery to be sold in an otherwise bearish market.  

Pro Ag notes that outside markets have not participated in the grain rally, with metals falling lower today with severe losses (nearly 5% in silver today), with gold down $45/ounce.  The US dollar was sharply higher and crude oil down nearly $2.  Yet corn gained 9c today, so clearly this rally is all weather in SAM (not outside markets).  The key question is how far grains can rally without support from outside markets?

Pro Ag looks for a sign to make catch up sales, and perhaps even advance sales when this rally is exhausted.  But for now, the rally continues so as is usually the case on a market rally, sitting on your hands is good. The question is, how long do we continue to sit on our hands?

We are close to hitting some resistance marks for this recent rally, but corn could push all the way to $6.70 March corn (another 30c rally). If we can get close to that mark, perhaps it would be time to just pull the trigger on some more grain sales.  Then we'll have to reevaluate for the future.

Perhaps of more interest is soybeans, which had a well established downtrend in place when prices turned around about 2 weeks ago. Now, we've rallied March soybeans over $12, with a $1 rally in the past 2 weeks.  Can we sustain this pace?  We've actually pushed through first resistance at about $11.75, and now the next significant area to challenge is around $12.90, a good 80c from current price marks.  If we can rally to this area, again that would be a target to make catch up sales on this SAM weather rally.  The key question now is, can we get there?

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