The effects of the South American floods and drought on corn and soybean supplies are likely to begin emerging in Tuesday’s USDA reports.
“There’s no doubt that USDA will take a minor stairstep approach toward this whole issue with South America,” said Rich Nelson, chief strategist at Allendale, speaking on U.S. Farm Report, who thinks USDA forecasters might trim the Brazilian corn crop to 78 million metric tons in the May World Agricultural Supply and Demand Estimates.
But he also expects it to be the first of many adjustments this growing season for both South and North America. “We’ll certainly see a lot of change regarding that in future months,” Nelson predicted. “As the U.S. season evens out after planting, we’ll probably see a little more focus on the U.S. side.”
Mike North of Commodity Risk Management Group also expects to see some new numbers—although perhaps not dramatically different ones—on Tuesday.
“USDA didn’t chase the crops on the way up when they were getting bigger in everybody’s eyes, and they’re not going to chase them on the way down, either,” said North, also speaking on U.S. Farm Report. “They’ll take a more conservative approach to arriving at their final number.”
In addition to a snapshot of the South American supply situation, North and Nelson are also interested in the latest estimates on U.S. supply and demand.
“We aren’t just going to be focused on South America,” North said. “Everybody’s going to have to come back and say, ‘Look at all these numbers we’re going to be producing in 2016 right here in the homeland.’”
Those numbers raise some concern about corn prices among analysts. “I think corn has quite a few headwinds against it right now, especially as we’re ready to get this crop planted and get a huge 500-million-bushel increase in production this year,” said Nelson.
Do farmers really need to worry about that, given the potential production drop in Brazil that’s troubling so many in the trade? Perhaps, according to Nelson. “With the massive U.S. supply ready to come online, I really can’t see this market having any big rebound, at least on a fundamental basis.”
The news earlier this spring that China would stop stockpiling corn also creates another challenge for corn prices, which closed Tuesday in the high $3.60s for May and July futures.
“That’s the kind of stuff that corn is going to have to continue to fight,” North said. “It makes it really tough to see a soybean-like move.”
Soybeans lost between 7 and 8 cents on Tuesday for May through August futures, but prices still remained above $10.
“The reality is that soybeans led the charge in this recent run. They’ve maintained a strong price where it’s sitting here at $10,” North said. “If you haven’t made any sales on anything yet, that would be the first place I’d start.”
Could soybeans slip back below $10? Yes, but they also could go higher, given all the concerns about supply, demand, and weather during this volatile spring.
“The bottom line is: Prepare for a potential retraction in the marketplace, but leave the top side open in the even that we should see some news that really stirs things up,” North advised. While Tuesday’s USDA report will contain important information, it “probably isn’t the real big thing,” he said. “It’s going to be weather that really determines where soybeans make their next run.”
Watch the U.S. Farm Report discussion here: