MARKET WATCH

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Published: January 6, 2012

It is summer in South America and temperatures the first week of January were expected to be in the mid 30s C in Argentina.

The heat is adding stress to corn and soybean crops that have suffered from little rain this growing season.

The troubles down south helped canola stage a modest rally in December with the January contract rising about five percent over the month.

However, the contract closed the year lower than where it started in 2011.

That was the first time in three years that the canola market lost ground over the 12 months.

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A record crop and global economic turmoil were the cause of the slight weakening of canola prices.

The canola price trend and the general crop market direction early this year will be strongly influenced by South American weather.

Argentine growers are still seeding and had about 80 percent of the forecasted 9.25 million corn acres in the ground at the end of December, but work had stopped because of the dry weather.

The area in corn was expected to be about five percent more than last year.

Argentina is the world’s second largest corn exporter, third largest soybean exporter and is the top exporter of soybean oil and meal.

The United States Department of Agriculture forecasts an Argentine 2011-12 corn harvest of 29 million tonnes.

But with the lack of rain and hot temperatures forecasted for early January, analysts are scaling back their crop estimates.

Buenos Aires-based agricultural economist Manuel Alvarado Ledesma expects a corn crop of about 23 million tonnes.

Corn is at a more critical stage of development than soybeans but if the dryness persists worries about the oilseed crop will grow.

La Nina is behind the dry weather in Argentina, Paraguay and southern Brazil.

But in the central Brazilian state of Mato Grosso, the top soybean grower in that country, the moisture situation is better and more rain is forecast for early this month.

Indeed, the drought area in Brazil is mostly limited to the No. 3 producing state Rio Grande do Sul. Crops are planted later in that state and there is still time for January rain to save the day.

About the author

D'Arce McMillan

Markets editor, Saskatoon newsroom

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