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Market Commentary for 1/6/23
As the market moves into 2023, there are many reasons bean prices could go up or down. The following provides rationale for both.
Reasons The Bean Market May Go Lower
- When Brazil’s harvest is in full swing mid-January, US export sales pace likely drops significantly. This could lead to US sales being swapped to Brazil, which could in turn lower US prices.
- La Nina is forecasted to end in February, which could help stabilize southern Brazil’s crop that was just planted, and the balance of Argentina’s bean crop being planted right now.
- Brazil is expected to produce 20% more beans than last year, which is the equivalent of 50% of Argentina’s entire production. Total South American production is expected to be a record with normal precipitation from this point forward.
- World economy concerns may mean a decrease in grain demand globally.
- While China’s economy may be coming out of lockdown, some people may continue to self-isolate, which could keep food and feed demand suppressed for several more months.
- As China opens up there are concerns a new covid variant may emerge and quickly spread around the world, causing widespread demand issues.
- While the biofuel market is a bullish factor long term, most additional crush plants will not be operational until late 2024 or 2025.
Reasons The Bean Market May Go Higher
- Export sales pace has been adequate, which could keep US carryout tight.
- Argentina has had limited precipitation so far, and forecasts indicate dry weather may continue for at least another 2 weeks. This may mean nearly 20% fewer bushels will be produced than originally expected.
- Southern Brazil, where 15% of their crop is grown, as well as Paraguay and Uruguay have been dry too and may have yield reductions.
- China appears to be opening up again, which could lead to more feed demand.
- Soy plants in the US continue to have healthy margins and will continue to grind as much as they can.
- Over the long term, additional biofuel demand should keep bean demand strong.
- Generally, farmers seem to have enough cash on hand, and may not be interested in selling grain until more is known about the summer weather.
- La Nina continues to last longer than expected.
Bottomline
There are several major unknown variables that could impact prices moving forward. The first will be on January 12th, when one of the biggest USDA reports of the year, will provide final yield and stock numbers for 2022 and give the market direction. After that South America’s weather over the next 45 days will be a major factor. Longer term the value of the US dollar compared to the Brazilian Real could dramatically affect prices. And finally, the world will continue to watch what is going on with China to gauge future demand from the world’s largest consumer of soybeans.
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Jon Scheve
Superior Feed Ingredients, LLC
