This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at [email protected] or 843-540-4540.
Finally, we have a week with a lot to talk about. Soybeans finally found a spark starting with dry weather in Brazil. November beans traded as low as $9.55 on Sept 16th and traded as high as $10.64 on Thursday. The biggest driver of this rally was the delayed monsoonal rains in Brazil. The euro model had been forecasting rain starting the first week of October but starting this week the precip totals were trending lower. Tuesday saw a lot of farmer selling which pressured the rally but Wednesday soybeans were able to resume the uptrend. Thursday started off making new highs but much like Tuesday could not hold the highs and ended up closing down double digits. This is mostly a weather rally and those can end very abruptly.
The weakness on Thursday seemed to come mostly from more precipitation showing up in the weather models. Late planting does not have near the yield penalty for Brazilian soybean producers as it does in the US. The northern growing regions are almost tropical so they do not have a frost that ends their growing season. The dry season is what ends their growing season so they can still achieve full yield potential even with a very late planted crop. This is a weather market that has given us a gift on beans with more than a dollar rally. I think a likely scenario is that the market will continue to rally on the delayed planting story. How high and how long this lasts depends on how long until they get the rain. But once they get enough rain to plant, we are probably going to see a significant pullback in the market. They need to continue to get rain throughout the growing season to make a crop, but once they get enough rain to get it planted the market may give back all this weather premium. Then if there is another threat later in the growing season, the market will need to price that in. Weather markets can be very fickle and end quickly. That is especially true this year when we have more cushion in the world balance sheet.
While late soybean planting in Brazil does not reduce yield potential, there are some other implications thought that will be felt in the market. One is that it widens the export window for US beans which is a good thing for us. Another implication is a very narrow window and reduced yield potential for the second crop corn. The corn market is pricing that in a little bit right now, but corn has a lot of other drivers right now that are overshadowing that.
Corn got strength this week not only from weather in Brazil but also the strength in wheat. The Paris wheat contract has been the leader on this rally and on Thursday when we saw the Paris exchange weaken, that weighed on our wheat contract as well. Increased rhetoric in Ukraine. Smaller crops in Europe and dryness in Australia have all helped push wheat higher. Weighing on wheat is the fact that Russia continues to ship cheap wheat even though we keep talking about how their stocks are tightening.
Other bullish news this week was increasing stimulus in China. We have been talking about concerning economic data out of China for months or years now. There was an announcement earlier in the week of more fiscal stimulus in China and then later in the week an emergency meeting of the politburo. Many read this as a precursor to more dramatic interventions to boost growth in China. There were rumors this week China was shopping for up to 20 cargoes of beans, but nothing confirmed yet so the market has started to get skeptical of that one.
While the approaching hurricane will be devastating for many, it should add a significant amount of water to the Mississippi which will help with harvest logistics in the Midwest.
Next Monday we get USDA’s Quarterly stocks report which will be the final count on old crop bushels. It will set the carry-in for the updated balance sheets we get on the October supply and demand update which will be released on Oct 11th. That report will give us USDA’s updated yield estimate as well.