Grains were all down for the week with light holiday volume, shipping concerns and more favorable weather in Brazil and winter wheat areas in the U.S. For the week, March soybeans ended 25¼ lower, while still holding the $13 level. March soybean meal dropped $5.50 per short ton, with March soybean oil losing 113 points. March corn was down 10 cents, March Chicago wheat lost 13 cents, March Kansas City wheat dropped nearly 20 cents and Minneapolis wheat was off 16 cents.
Pressure in the soybean complex came from rains that fell in the driest areas of Brazil late in the week but more on the rain chances in the extended forecast and a possible pattern change. Areas of central and northern Brazil have been suffering from early season drought with rainfall 40% to 50% below normal and temperatures consistently 10 to 12 degrees above normal. That has delayed planting, and some farmers have had to replant soybeans several times, which pushes back the crop and hurts yield. CONAB and private firms have already shaved the size of the soybean crop, with this week’s lowest estimate at 153 million metric tons (mmt). However, the rain chances trumped that news.
That could change next week depending on Brazil rains and forecasts over the holiday weekend. Darren Frye, CEO of Water Street Solutions, says: “We could find out that if these models go dry over the weekend, like the European model is promising quite a bit of rain through the next four to six days. For some reason if that dries out over the three-day weekend you could have a huge volatile trade to the upside. Contrary to that, if you do get those rains, we will probably have more weather premium come out of the market and will keep leaking lower into the new year.”
Forecasts for Brazil have missed the mark the last several weeks with the European model overestimating rainfall. Frye thinks that trend is likely to continue. “If we don’t get the rains and the European model underperforms, we can really have some fireworks here as we get into next week.”
Frye says the crop is shrinking in Brazil, and if the weekend rains are a bust, the crop could go sub-150 mmt.
“I think we’re down in the 140s right now just taking a look at what’s going on in so many areas in Brazil.”
He thinks it will take that kind of loss to finally gain the attention of the market and push soybeans back up to the upper end of the trading range and possibly back over $14.
At that point, Frye thinks China will become concerned enough to re-enter the export market to buy U.S. soybeans.
“I think that will excite the privates,” he says. “I have seen Sino Grain in to first buy for the reserve side. They like Argentinian beans or U.S. beans; they don’t like Brazilian beans to put into storage. But you know when you look at what Argentina has, they don’t have any beans after a short crop last year.”
With drought in central and northern Brazil and excessive rain in southern areas, the domino effect is fewer acres of second crop safrinha corn will get planted. Frye says, it’s too early to know, but he thinks they’re going to have some logistical problems getting that crop in, given what’s happened with the soybean crop. However, that story might not gain the trades’ attention until after the first of the year.
