Brazilian Soybean Estimates Continue to Decline

March 7, 2012 03:10 AM

What Traders are Talking About:

* Brazil soybean estimates continue to decline. The state ag agency in Brazil's No. 3 soybean producing state of Rio Grande do Sul (RGDS) lowered its soybean production estimate to 7.1 MMT from 8 MMT previously due to impacts from drought. Conab, the Brazilian equivalent of USDA, will update its official Brazilian soybean forecast tomorrow morning and USDA will follow with its updated crop projection Friday morning. Pro Farmer South American crop consultant, Dr. Michael Cordonnier, who is currently in Brazil says the Brazilian soybean crop is worse than he anticipated and feels his current forecast of 68 MMT may be 1 MMT to 2 MMT too high. Dr. Cordonnier says the RGDS crop is some of worst soybeans he has seen in Brazil over the past 30 years.

The long and short of it: Falling Brazilian crop estimates are keeping Chinese buyers interested in U.S. soybeans longer than expected, which is the fuel behind the current price rally in the soybean market.

* China continues to talk corn. China Grain Reserves Corp. (Sinograin) would import corn if there's a need or if it's profitable to do so, according to the head of the state grain stockpiler. But currently, U.S. prices are higher than domestic prices, so near-term purchases are un likely. Sinograin also says it plans to expand grain and soy processing in an attempt to help the government fight inflation. Meanwhile, the general manager of the Bureau of State Farms in Heilongjiang, China's top corn producing province, says corn acreage will increase and soy acres will decline this year, continuing the recent trend, as the province seeks to expand total grain production by 8%.

The long and short of it: China continues to talk down the need for corn, but price is clearly a key factor. If corn prices drop sharply, China is likely to show up as a buyer of U.S. corn.

* Macro focus on Greece. The Greek government is putting additional pressure on private bond holders to agree to a debt swap as Thursday night's deadline looms, saying it will force the write down for those not not voluntarily participating. Many of the biggest holders of Greek debt are said to be on board with the write down, but there are still some showing resistance. Greece needs the debt swap before it can get the emergency funding from the European Union/International Monetary Fund in order to meet a debt repayment on March 20.

The long and short of it: Greek uncertainty triggered a widespread selloff in commodities and stocks Tuesday. If Greece defaults, it would likely trigger a sharp knee-jerk reaction, so investors will continue to watch the situation closely today and tomorrow. It will be hard to generate much buying interest in grain and soy futures with the Greek uncertainty hanging over the market.


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