Analysts: South American Weather Continues to Spark Volatility

May 3, 2016 05:00 AM
Analysts: South American Weather Continues to Spark Volatility

Weather woes, especially in South America, will continue to spark volatility in grain markets in the months ahead, according to analysts.

“Volatility will be with us,” observed Don Roose, of U.S. Commodities, pointing to the uncertainties of higher-than-expected losses from harvests not yet completed in Brazil or Argentina, and more weather worries in the U.S. from La Nina.

South America is now the world’s largest producer of soybeans, outpacing U.S. production by one and one-half times, according to Roose.

“The big rally in beans and corn in April started in South America,” pushed by the huge surge of buying by hedge funds, Roose explained. The funds were short on soybeans and corn, and now they’re long, according to Roose.

Even though the flooded areas in Argentina are starting to finally dry out, loss estimates are still being tallied. The delayed Argentine harvest is only about 25% complete and won’t be finished until June. So far, an estimated 5 metric million tons have been lost, but it may take analysts until the third week of May to assess the damage to the crop.

Meanwhile, drought-plagued Brazil is importing corn to make up losses in safrinha, its second corn crop. With Brazil’s harvest starting in June and ending in August, the commodity markets could start to feel the impact of Brazilian production in July, and there is still plenty of time for more weather issues.

Kevin McNew of Grain Hedge noted that several analysts have reduced their Brazil corn forecast for Brazil by roughly 6.5 million metric tons.

“It will be a volatile year with a rally to the upside if (the numbers are) favorable,” Roose noted.

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