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Winter Dryness in Brazil Could Fuel U.S. Soybean Bulls

Monday's USDA Crop Production caught the market's attention for a short time, but since then, the focus has turned to the weather in key soybean-growing areas of South America. Though rainfall is forecast in some of those critical areas, the grain markets could see some bullish action if the rains don't fall as expected.

It's been raining "over the past few days" in parts of Mato Grosso do Sul and other key soybean-growing parts of Brazil and Argentina, though dryness continues to stick around in areas of Parana and Sao Paulo, where moisture is now starting to fall well short of what's needed. Meanwhile, in parts of Rio Grande do Sul and Santa Catarina, rain has been plentiful and now dryness is just what's needed there.

"While intermittent showers are possible in the south, the bulk of Brazil rains favor the north through the next two weeks," according to Wednesday's Ag QUICKsheet report from Commodity Weather Group (CWG).

Those southern areas of Brazil that have received plentiful precipitation lately, if current forecasts reach fruition, may wind up being better off heading further into winter, forecasters say. That's because the general outlook has begun to trend slightly drier in parts of Brazil where a lot of soybeans are raised. Farmers in central and southern areas will likely continue to see much-needed rain in December, while those in northern areas could see the tap turn off. Moving into January, though, it may be drier in more of the country, and that expansion could grow overall crop stress in Brazil.

"The outlook for December has trended slightly drier in east-central and northern Brazil, which would result in some stress there on corn and soybean growth," says MDA Weather Services senior ag meteorologist Don Keeney. "However, near-normal rains are still expected in the heart of the center-South belt for the month. By January, though, dryness is expected to expand a bit further in south central Brazil, stressing corn and soybeans."

Meanwhile, rainfall will continue to be more plentiful in Argentina through January, a time frame that could see dryness grow in northern Brazil.

The net effect of the drier outlook is increased soybean crop stress that could ultimately trim yields in some areas, trimming South America's overall soybean output and putting more bullish pressure on the U.S. soybean market, says Kluis Commodities market analyst Bob Linneman. Even in the short-term, a drydown in Brazil could be enough to fuel a rally in the soybean trade, something that may spill over into the other pits.

"Will the rain forecast for South America pan out as predicted? Current estimates range from 3 to 5 inches in many areas," Linneman says. "However, if this soaker fizzles out before any substantial rain hits the ground, then bulls will be in charge early next week."

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