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Market Eyes Brazil's Dry Soybeans

This week’s CME Group soybean market is attempting to use a drier weather outlook in Brazil to build a stronger trading base.

After jumping up 28¢, early in the week, the market has set back Wednesday, making market watchers wonder how long the Brazilian weather scare can underpin the market.

Since record crops are expected to come from all major producers of the oilseed, recent weather patterns in some parts of Brazil may bring a much needed bullish slant to the market.

In addition, a public calamity situation is looming in Southeastern states such as São Paulo, Minas Gerais and Rio de Janeiro with an ongoing water rationing. In the Northeast, dry weather recently started to affect grain producing states such as Goiás and Bahia.

Agroconsult, a Brazilian-based analyst firm, revised its 2015 soybean output forecast to 93.9 million metric tons, lower than its previous estimate of 94.6 million tons. In addition, some analysts say that the next National Supply Company (Conab) report would have a revision too.

Also this week, a USDA attaché in Brazil pegged that country’s 2015 soybean crop at 93.0 mmt, above its previous 92.0 mmt forecast in November and with slightly higher planted and harvested acreage figures. Yet this week’s attache crop estimate is below the USDA’s 95.5 mmt estimate in January.

The dryness in the center-western state of Goiás is expected to lose nearly 6% of its production or 1.4 million tons, according to a projection authored by the Federation of Agriculture and Livestock of Goiás (Faeg). Some locations in that state have not had one drop of rain in about 40 days.

"The drought in Goiás was widespread. We can exclude the North . . . But all other producing regions have not seen rains on an average of 20 to 25 days in January," says Cristiano Palavro, an agronomist at Faeg.

It is the second year in a row that Goiás faces dryness over soybean fields. Last year, the average yields were 42.7 bushels per acre. As of today, if the rains return in the coming days as forecast, the yields would reach 44.54 bushels per acre.

American consultant Kory Melby, a resident of Goiás, says the precipitation is just about 10% of the regular rainfall, but points out that rains are being predicted for the coming days. Soybean harvest will move into high gear now. The bulk of the crop will be harvested in the next 30 days. Early yields were erratic just like the start of planting. "Soybeans need water with heat like we have had," informs Melby.

A victim of drought during the current and the previous season, Flávio Augusto Negrão planted 12,355 acres of soybeans this year. He said that he expected to lose about 30% of the crop in 2015. Some parts of his farm did not have precipitation for 30 days.

"I will lose at least 30% of the crop, and I have just 10% of it insured. I sold most grains on early contracts; the remaining part I will set right away after harvest," complains Negrão. The Goiás farmer had yields of 35.6 bushels per acre in 2014 and expects to have 38.3 bushels per acre this year.

Farmers from the Northeastern state of Bahia are not worry-free. The state has an output of about 4 million tons, but its main producing region, the west, will have significant losses. In Luís Eduardo Magalhães and surroundings, there was no precipitation from Christmas day to January 19.

"Since the 19th, rains intensified, but we are going to lose from 15% of 20% of the soybean crop. In the case of corn, losses can get up to 30%. And yet prices are not good," reveals Raimundo Gregório, a consultant in Luís Eduardo Magalhães.

In Mato Grosso do Sul, the harvest already reached 5% of the projected 6.8 million tons, according to the Federation of Agriculture and Livestock of Mato Grosso do Sul. The number would be a record and an increase of 12.4%. The yields jumped to 40.9 bushels per acre from 43.9 bushels per acres. Nevertheless, not all farmers are so happy.

Fábio Franco, who plants 3,706 acres of the oilseed in Itaporã, did not start the harvest yet. Franco will just begin harvest works by February 20, and he is unhappy with the weather so far. "My sandy soils suffered a lot during a period of 18 days without rain. By the harvest, I think prices will be below, but I will have to sell right away," says Franco.

Regarding Mato Grosso, Brazil's top producing state, the harvest reached 10.4% of the surface, which is a similar pace compared to last year. The state sees erratic daily rains and has a current productivity forecast at 46.06 bushels per acre, according to the Mato Grosso Institute of Agricultural Economics weekly report.

In Paraná, the second-largest producer of soybeans, the weather has been also erratic, and a revision of projection was already made by a local agency. The local Department of Agriculture reduced the production forecast from 17 million tons to 16.4 million tons, which nevertheless would still be a record. The revision was made because of unexpected higher temperatures in January.

The same high temperatures were seen in Rio Grande do Sul - sometimes topping 100ºF. On the other hand, according to the Rural Institute of Technical Assistance of the state, the crop development is considered very good, and the projections remain unchanged.

Separately, private analyst firm Informa yesterday increased both its Brazilian and Argentine corn production forecasts in its February World Crop Report. It pushed up Brazil’s corn output 550,000 metric tons to 72.8 MMT and Argentina’s up 1.0 mmt to 23.0 MMT.

The firm also increased 2014/15 Argentine soybean output by 1.5 mmt to a robust 57.0 mmt, and that country’s wheat up 500,000 this month to 12.5 mmt. Canada’s wheat output also increased by 1.5 mmt to 29.5 mmt in 2015.

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