The News & What it Means – Quiet for Now but Market Attention to Soon Turn to South America

By John DePutter & Dave Milne – Oct. 16, 2018

 

The news:

“Brazilian farmers are planting the new soy crop at a record pace, reaching 20 percent of the projected area by Thursday, consultancy AgRural said on Monday.”
-Reuters, Oct. 15, 2018

 

What it means:

The impact on Chicago soybean futures may be negligible or even non-existent for now, but don’t go to sleep on it – Brazil is a major market factor.

 

With plenty of rain in the American Midwest, the bigger soybean story right now is the delayed U.S. harvest. According to Monday’s USDA crop progress report, just 38% of the nationwide soy crop was in the bin as of Sunday, up only 6 points on the week and 15 points behind the average as rain and snow limited fieldwork, particularly in the western Corn Belt.

 

But with the weather in the second half of October expected to generally improve across the Midwest, this year’s record large U.S. soybean crop will eventually get safely tucked away. And when that happens, typically around the first couple of weeks of November in most years, the market’s attention will start to turn more toward the situation in Brazil and Argentina, the two largest South American soybean producers.

 

At that time of year, in early to mid-November, soybean planting is at its peak in Brazil and headed toward the usual finishing line at the end of month. For Argentina, soybean planting gets started later, often around early November, and typically continues through until the end of December.

 

Jan-Feb weather critical for yields
For both Brazil and Argentina, the critical weather period in terms of determining yields comes in January and February, and that’s when the Chicago market will often be hyper-sensitive to each and every passing shower – just as it is in July and August for the North American soybean crop. As most soy producers will remember, the May soybean future soared to around a one-year high in late February, 2017 in response to an ongoing drought in Argentina that was responsible for steadily declining production estimates.

 

The bulk of the Brazilian soybean crop then comes off in March and April, while the Argentine harvest starts a bit later and often winds up in May and June.

 

As South American soy production levels become more assured and the American harvest progresses, the market focus then returns to North America in terms of spring weather and U.S. planting intentions.

 

Of course, the weather in South American wouldn’t matter much at all if Brazil and Argentina were not such large and important global producers. For the upcoming 2018-19 crop, the USDA is currently projecting Brazil and Argentina output at 120.5 million and 57 million tonnes, respectively. Together, that dwarfs the estimated 2018 U.S. soybean crop of 127.63 million tonnes and helps to ensure that world soybean demand – pegged at 358 million tonnes for 2018-19 by the International Grains Council – gets satisfied.

 

Indeed, the next single largest soybean producer is China at 15 million tonnes.

 

Brazil off to good start
So, how are things shaping up in South America so far? As the headline suggests, planting is off to a quick start in Brazil, certainly aided by good soil moisture conditions. In fact, rainfall has been great enough in the most important soybean production areas more recently that producers there would likely welcome a bout of drier weather so that planting could proceed at an even quicker pace.

 

As for Argentina, conditions remain overly dry in parts of the country, but no major drought is expected to redevelop. Sufficient rain is forecast to occur over the next few weeks to support the start of soybean planting early next month.

 

The weather around the world is a key factor for many local prices.

 

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