Drought hits Brazil (Grain Marketing)
(Editor’s note: Rob Davis is a professional grain market analyst.)
The February WASDE report was released last Wednesday with USDA projections coming in relatively close to market expectations again this month.
The grain markets were up strong going into the report and closed the day out in a similar fashion.
The soybean crop in Brazil continues to get slashed by the USDA and private analysts.
The USDA is estimating the 2022 crop around 134 million metric tons.
The crop has deteriorated faster than any other year on record, as the combination of drought and heat have taken its toll.
You’ll hear market analysts say that “big crops get bigger and small crops get smaller.”
While this theory has been tested and does check out, it is more pronounced when referring to a corn crop.
This is also something that private analysts are already aware of, as many have recently revised their soybean production estimates for the crop in Brazil below 130 million metric tons.
Many analysts began this year with predictions around 145 million metric tons.
StoneX recently made headlines as they reduced the crop to 126.5 million metric tons, which work out to 4.65 billion bushels.
2012 was a drought year for Brazil as well and final production did ‘get smaller’ as it ended up near the lowest forecast.
The phenomenon of “small crops getting smaller” is likely created when the USDA attempts to take a more conservative approach when changing their productions estimates.
On Feb. 10, the March 2022 soybean contract closed at $15.74 3/4 with the November 2022 contract at $14.32.
The March contract is nearly $2 higher than the price printed in the column last month!
While we may have put in a high for soybeans at $16.33 on Feb. 10, I don’t anticipate that we return to the $12-13 range anytime soon.
The short supply in Brazil has China scrambling to fill their needs with U.S. soybeans.
At the same time, we have the Bio-diesel train chugging down the tracks here in the United States.
Last month I mentioned the battle for acres was underway and you can see it playing out as corn has also rallied to keep from losing much ground to the high-flying soybean market.
On Feb. 10, the March 2022 corn contract closed at $6.41 3/4 with December 2022 closing at $5.84 3/4.
The strength in the corn market has been impressive as we have seen new contract highs multiple times over the past week.
The March corn contract has climbed over 50 cents since last month. On Feb. 10, the March 2022 wheat contract closed at $7.71 1/2 and the July 2022 wheat contract closed at $7.75.
As I wrote last month, the wheat market rally had mostly run its course and will fall back into its more common role as a follower of the corn market.
A couple things to keep an eye on are, obviously, the unrest at the Ukrainian border and the drought conditions that continue to plague more than half of the wheat producing acres here in the United States.
(Editor’s note: Rob Davis spent 12 years in the finance industry as a portfolio manager and three years as a grain merchandiser and market analyst, currently farming on the Delmarva Peninsula, raising grain and poultry. Davis can be reached by e-mail at rob@RichLevels.com.)