I’ve always advised producers not to build a marketing plan on the weather forecast, but that doesn’t mean the weather outlook should be ignored.
The transition from La Niña to El Niño has already created dynamic market conditions. Drought in the western half of the Corn Belt in 2023 has the soybean market on edge ahead of the South American growing season. Heavy rains in southern Brazil with drier-than-normal conditions in the central and northern areas, where it is more production-intensive, are connected to the development of El Niño.
Following last year’s record Brazilian soybean crop, global soybean stocks are hefty. They’re not burdensome, but Brazil’s crops have been big enough to keep the globe well supplied. In the U.S., carryover supplies are tightening and are projected to be even tighter at the end of the current marketing year than in the past two years. Tight U.S. supplies, along with last year’s drought in Argentina, have kept U.S. soybean and soymeal prices at relatively elevated levels. If weather threatens Brazilian production at the end of this calendar year, look for strength in their soybean prices to light a fire in the U.S. market.
But if the weather supports another big Brazilian soybean crop, the 2023 lows around $11.50 in March soybean futures will likely be tested.
Importance of a Plan
Weather uncertainty is why you must stay active with a marketing plan. At $13 March soybean futures, the downside risk to the May low is just slightly more than the upside potential to the late-July high. Removing downside price risk via cash sales or hedges (long put options) is warranted and so is reopening upside price potential on bushels sold in the cash market with long call options.
The U.S. soybean market will be extremely sensitive to threats to the Brazilian soybean crop and will stand ready to add to 2023’s 83.6 million soybean acres. Most likely, there will be at least one weather scare during the Brazilian growing season. Continue to use rallies to increase old crop sales and start 2024 crop sales. A close above $13.50 in November 2024 soybean futures would signal global fundamentals have changed and would flip attitudes from “sell rallies” to “make the market prove it is done going up” before advancing sales.
Brazilian corn producers are also looking at a different scenario than they were at this time last year.
- Last year, there was financial incentive to plant the safrinha corn crop. Safrinha corn looks to be breakeven this year.
- Last year, the La Niña weather pattern encouraged growing a winter corn crop. This year’s El Niño has already delayed soybean plantings due to dry conditions in Mato Grosso and Mato Gross do Sul. Some growers have abandoned plans for a safrinha corn crop and instead will plant longer-season soybeans. CONAB (Brazil’s NASS) pegged a 9.5% drop in the Brazilian corn crop from year-ago in its first projection for the year.
Sell rallies in corn, but these El Niño-related issues could change attitudes in early 2024.
