Every day, North America’s oilseed crops move closer to a sure thing and the risk margin that was in the markets deflates.
The American soybean crop has enjoyed needed rain the last two weeks. The Canadian canola crop has so far avoided widespread frost.
So for the next few months a harvest market mentality will probably rule markets, with prices static to lower until new news sets the direction.
One new factor will be the seeded area of Brazilian soybean.
I reported back in June that after two bad harvests, Brazilian farmers are less enthusiastic about the crop.
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Analysts are now issuing their seeding forecasts and, so far, most of them see fewer acres than last year. They range from the agrochemical sector saying area will be down by eight percent, to the vegetable oils industry association that sees a three to four percent decline.
Analysts say farmers will seed less because their income is down due to the drought. Also the local currency, the real, has appreciated against the U.S. dollar, resulting in lower farmgate prices for their crops. Brazilian farmers also complain of rising input costs and of problems getting credit.
But that does not signal a smaller crop. Drought slashed production in 2004-05 to about 51 million tonnes, down from the preseeding forecast of 66 million tonnes.
So even with reduced acreage, if yields return to near normal, Brazil could produce a crop of 57-59 million tonnes, or about eight million tonnes more than 2004-05.
However, that is about three million tonnes less than what the United States Department of Agriculture now has pencilled in for Brazil production.
Of course, all this is speculation about a crop that won’t be planted until October.
However, if the forecasts prove correct, a smaller seeded area in Brazil will help to support oilseed prices.
U.S. soy production is going to be substantially less than last year and if Brazil’s crop is kept in check, and world demand rises as it usually does, stocks at the close of 2005-06 could be static instead climbing as now forecasted by USDA.
