Just as oilseed prices peaked Jan. 13 at multi-year highs on a cut to United States soybean and corn year-end stock forecasts, South American crops began to improve thanks to increasing rainfall.
Since then, soybean and canola futures retreated but remain near multi-year highs as traders watch daily South American weather forecasts and assess the effect of the price movements on demand from buyers.
Will buyers take advantage of this price break to make additional purchases to cover their needs, fearing another rally later in the crop year on worries of North American shortages?
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The La Nina that often reduces rainfall in farming parts of South America is still in place. The U.S. Weather Service Climate Prediction Center said Jan. 14 there is a 95 percent chance of it continuing through March before transitioning to neutral in the spring.
La Nina’s persistence makes the recent rain in Brazil and Argentina seem surprising.
I’ve struggled to reconcile rainfall maps that show daily accumulations of 25 to 75 millimetres in parts of Brazil with other maps that show weekly accumulations falling below average.
A guy from the Canadian Prairies finds it hard to understand how much rain on average falls in a country with a sub-tropical rainy season. Apparently three inches, or 75 mm, a week in January is fairly normal.
Michael Cordonnier of the authoritative publication Soybean and Corn Advisor (www.soybeansandcorn.com) wrote recently that at the height of the rainy season “an area can receive 50 percent of normal rainfall and still be enough to result in normal yields if the rains are distributed equally.”
He noted that the earliest seeded soybeans suffered from the December drought and will likely see disappointing yields, but later seeded crop is supported by the recent rain.
Rainfall into the first week of February is expected to be adequate, but he noted longer range forecasts show potential for a drier February, which could hurt late-seeded crop, but again emphasized the real danger is extended bouts of no rain, not just less-than-average rain.
This helps explain why the U.S. Department of Agriculture’s Jan. 12 monthly update kept its forecast for Brazil’s soybean crop at 133 million tonnes, unchanged from December.
The situation in Argentina is not as stable.
The USDA lowered that country’s soybean forecast to 48 million tonnes from 50 million in December. Last year’s crop was 48.8 million tonnes.
The Buenos Aires Grain Exchange has a lower estimate at 46.5 million tonnes and the Rosario Exchange is at 47 million.
Rain last week improved conditions but the Buenos Aires exchange on Jan. 20 said only 21 percent of the crop was in excellent shape, compared to 59 percent at the same time last year.
Ten percent was considered in poor shape compared to only one percent last year.
For now, soybean traders think South America might be over its most dangerous weather and are discounting the idea of further cuts to production forecasts.
So that has reduced the upward pressure on soybean and canola futures, but prices can’t fall too far because they need to be at a level that will ration demand.
The USDA’s January report cut its forecast for year-end U.S. soybean supply to 140 million bushels for a stocks-to-use ratio of only 3.1 percent, a seven-year low. For all practical purposes, they’ll have no supply left.
Canadian canola stocks will also be the tightest in years and weekly exports continue strong.
Palm oil supply also is tight and is expected to remain so through the first quarter of this year. However production will likely recover strongly in the second half thanks to current strong rainfall in Malaysia and Indonesia from the La Nina.
That could put downward pressure on oilseed prices in the 2021-22 crop year.
But for the remainder of the winter and into the spring, oilseed prices will be in a battle for acres with other crops in short supply in North America.
The USDA’s report also cut the year-end domestic corn supply to 1.55 billion bu. for a stocks-to-use ratio of 10.6 percent, which like with soybeans is a seven-year low.
The market will need to produce prices that will ration demand and encourage enough seeded acreage to rebuild supplies of both crops.
This has analysts forecasting that the U.S. will bring idled acres back into production, raising total seeded area.
And with current new crop prices showing much stronger profitability in soybeans, we could see U.S. soybean area climb to more than 90 million acres, up from 83.1 million last year. And corn can’t really fall much from the 90.8 million acres seeded last year.
In Canada there is lots of talk of increased canola seeded area.
