South American Weather Isn't the Only Thing Shaking Up the Markets

Argentina's new president says he will take drastic steps to address the country's economic challenges. The plan includes steps to devalue the country's currency, news that sent soybeans sharply lower earlier this week. 

On Tuesday, Argentina announced a sharp devaluation of its currency, as well as cuts to energy and transportation subsidies. It's all part President Javier Milei's plan to deal with what he calls an economic emergency.

Brian Grete, editor of Pro Farmer, says South American weather, combined with the news out of Argentina, were the two big market movers this week.

It's South American weather, especially with everything that's going on with the soybean crop down in Brazil, but also Argentina," he says. "There's a change of leadership there with the new president coming in as new economic plans and everything that that entails. The market is still trying to figure out what that'll mean as we move forward. But there's a lot of moving parts in South America right now."

Last week, U.S. Farm Report analysts said it was too early for USDA to make any major cuts to its projections for South American projections, as it's still too early in the growing season. But Chip Nellinger, of Blue Reef Agri-Marketing, says we are now getting into the heat of when weather will impact the South American crop.

"It is certainly crunch time over the next six or eight weeks," says Nellinger. "They had a little bit of a delay getting that crop planted, they were waiting on some rain, and it was too dry to germinate seed. But now their crops is in the ground and the next six or eight weeks, as you get into January and the first couple of weeks of February, really are more important. And it's less than ideal down there, they have received a little bit of rainfall in some of those dry areas. But the 10-day forecast here has triple digit heat, again, they've really battled the heat all season long down there."

It's not just the heat, Nellinger says it's also the lack of rainfall impacting the potential crop.

"So it the bean market, especially, has been a little bit reserved putting a bunch of weather premium in it. But I think especially as you turn the calendar to January, it's really going to start mattering a lot more to that bean crop down there," he says. 

Grete says while the potential impacts could be bigger on soybeans to start, he says overall, he thinks the South American weather story could have a bigger impact on the corn market. 

"It's soybeans up front, but the Safrinha corn crop in Brazil accounts for about three-quarters of their total production, and so that's a story that that will be told as we move forward because that crop isn't planted until after soybeans are harvested," says Grete. "So, the market still has some time. And I think that that's why we haven't seen the the corn market react to the Brazilian stuff yet, because they do have time and they're taking their time. They're waiting to see whether or not the weather situation turns around. But Safrinha corn acreage is going to be down and probably down more significantly than what the market has been anticipating all the way through."

All Eyes on Economic Changes in Argentina 

The economic changes could move past just devaluing the country's currency. There is also speculation of plans to step up the country's wheat production by as much as 60 percent and other changes that could affect agriculture.

"There are a lot of rumors," says Nellinger. "I think the one thing that the market reacted to initially midweek, as we saw some weakness in our corn, beans and the wheat market essentially overnight, is the 60% devaluation of their currency. And so all things beyond that, put aside that devaluation of their currency, is going to make them more competitive in the world market."

Nellinger says there's also talk Argentina's new president will remove export taxes.

"I think the President would like that, but I think that needs approval from Congress. And his party doesn't have the majority in Congress. In fact, there was a little bit of talk that they're actually going to increase corn and wheat export taxes here initially. So that export tax situation is really a volatile situation. Nobody knows anything about that yet, or how that will turn out. But the devaluation of the currency, I think, in the big picture, is something that definitely puts them in a more competitive standpoint, regardless of their export tax situation."

Nellinger says in the short-run, the drought last year means they don't have much of a crop to export.

"But as they get a new crop here several months down the road, hat really puts them in a better position as their currency devalued against other currencies in the world."