Back in mid-January, I wrote that farmers should keep an eye on developing dryness problems in South America because they could create a marketing opportunity.
If a rally developed, it would be good to sell into it because there are risks that could push prices down again.
Good wheat supplies from the 2011 crop, expectations for record corn acreage in the United States this spring, hopes for a more normal seeding season in North America and the constant dark cloud of the European debt crisis create the possibility for weaker grain prices in 2012-13.
Read Also
China’s grain imports have slumped big-time
China purchased just over 20 million tonnes of wheat, corn, barley and sorghum last year, that is well below the 60 million tonnes purchased in 2021-22.
Well, the rally has developed. South America’s crop is damaged, and for good measure, there are worries about the Black Sea winter wheat crop.
Oilseeds and wheat have regained the ground they lost when the European debt crisis shook confidence earlier this winter.
Indications of a reviving American economy, including good job creation in January, are for now trumping eurozone debt woes and adding support to commodity prices.
But new shocks are likely from Europe in the coming weeks so it might be a good time to act on grain pricing.
Drought in Argentina and southern Brazil has damaged soybean and corn crops and analysts are downgrading production outlooks.
As one example, analyst group Informa now peg Argentina’s soybean crop at 46.5 million tonnes, down 6.5 million since its December outlook.
The corn crop is estimated at 22.5 million tonnes, down 4.5 million tonnes. The USDA attache in Argentina has a smaller corn estimate — 21.8 million tonnes.
Informa’s Brazil soybean crop estimate is 70 million tonnes, down four million from December. The corn crop is pegged at 61 million tonnes, down two million.
The wheat market is also gaining a little on the freezing weather in Europe and the Black Sea region.
European crop watchers last week seemed to think that wheat would be little affected, but perhaps rapeseed would sustain more damage.
However, Ukraine’s winter crop has been under dry weather stress since it was seeded. Some areas have little or no snow cover and so the cold could damage seedlings.
The market will pay close attention to the U.S. Department of Agriculture monthly supply and demand report Feb. 9 to see how its reflects these weather problems. I’m expecting the USDA to cut South American crops, but it probably won’t be a major downgrade. The department usually scales down its numbers over several reports.
The USDA will also likely cut its forecast of Mexican corn production because of the severe drought there.
Remember, the market has already priced in smaller South American crops so unless the USDA makes bigger or smaller than expected cuts, market reaction might be muted.
We’ll report on the USDA numbers that day in the daily news section of our website and on producermobile.com, our site designed specially for mobile phones.
While there, check out our grain markets report posted every afternoon after the markets close.
I’m also on Twitter these days. Follow me @DArceMcMillan.
