Soy and Corn: how the market behaved - 19/12/2022

Last week was marked by slight fluctuations in Chicago, with the market being affected by the weather (in South America) and the economy (concerns about a possible global recession). The contract maturing in January/2023 ended Friday at U$14,79 per bushel (-0,20%) and the contract maturing in March/2023 at U$14,83 per bushel, also negative (-0,20. XNUMX%).

The beginning of the week was affected by the occasional improvement in the weather in Argentina, with unexpected rains during the weekend, putting pressure on the prices of soybeans and their derivatives in Chicago. However, these conditions did not remain, rekindling the warning of a possible crop failure in the Argentine country.

The planting of the 2022/23 harvest in Argentina is still significantly delayed. According to the Buenos Aires Cereals Exchange (BCBA), the country reached 50,6% of the planted area, compared to 64,8% in the same period last year. Planting continues to be threatened by the lack of water and the high temperatures that have persisted since November. Furthermore, there is considerable inequality in the emergence of sown soybeans, presenting uncertainty about its satisfactory development.

According to a report from the National Supply Company (Conab) released on 12/12, in Brazil, planting came very close to completion, reaching 95,9% nationally. In general, the crops are in satisfactory development conditions, with the exception of Rio Grande do Sul, which has low water reserves in the soil, harming the soybeans that have already been sown. This scenario is typical of the manifestation of the “La Niña” phenomenon, which causes a lack of rain in southern South America.

In relation to American exports, the numbers are positive. According to the US Department of Agriculture (USDA), actual sales for the 2022/23 season were 2,9 million tons in the week ending December 8. The market estimate was between 1,5 million and 2 million tons. These numbers begin to show that demand may begin to heat up, especially from China, which has inventories at below-average levels.

Furthermore, the American currency had a week of great fluctuation, closing Friday at R$5,29 (+0,76%). On the international scene, the US central bank increased the country's interest rate by 0,50 percentage points. The increase was already expected, however, the speech by its main representative, saying that rates could remain high for longer, brought a lot of risk aversion to the market, which reinforces the possibility of an economic recession.

According to the Grão Direto analyst, with the fall in Chicago and the rise in the dollar, Brazilian soybean prices remained stable with slight falls compared to the previous week.

What to expect from the soybean market

The climate in South America will continue to be a very important factor in the evolution of planting. The National Institute of Meteorology (Inmet) projects heavy rains for all of Brazil, with the exception of the northeast and south, mainly affecting Rio Grande do Sul.

On the other hand, rainfall will continue to be below average in Argentina's production belt, maintaining concern about the evolution of planting and crop development. This scenario keeps the prices of the soybean complex (bran and oil) under pressure in Chicago.

Furthermore, confirmation of China's return to shopping will be reflected in this week's American export figures, which could come in above market expectations once again. This will be watched closely and could reflect an upward movement in Chicago.

The appreciation of the American currency in the international market should continue, given the expectation that American interest rates will be able to remain high for longer, attracting capital to the United States. The internal scenario remains undefined, with political movements that cause uncertainty in the market.

If this scenario is confirmed, Ruan Sene, grain market specialist at Grão Direto, believes that this week could be marked by appreciation in Brazilian prices compared to the previous week.

Corn: how did the market behave last week?

The week was quite slow in negotiations in the domestic market. Buyers have satisfactory stocks to get through the month and are trying to bring prices down, given the still large inventory resulting from the off-season.

In the external scenario, the market continues to be heated, with Chicago ending the week on a high, worth US＄6,53 per bushel (+1,40%). The main drivers of Chicago's rise were the bad weather situation in Argentina and fears about the attack on the port of Odessa, Ukraine.

In Argentina, planting of the 2022/23 harvest remains significantly delayed, with only 42,6% of the area planted, according to the Buenos Aires Cereal Exchange (BCBA). Corn that was planted through mid-October is in fair to poor condition. With forecasts indicating the continuation of the drought pattern, these hectares have very little chance of reversing the situation, reinforced the BCBA.

In relation to the 2022/23 harvest in Brazil, planting continues to evolve, as corn planting reached 76,6% by 12/12, according to the National Supply Company (Conab). In general, the crops are in satisfactory development conditions, with the exception of Rio Grande do Sul, which has low water reserves in the soil.

Regarding exports, according to the Secretariat of Foreign Trade (Secex), Brazil exported 1,5 million tons in just 7 working days in December. This represents a 46% increase in the daily average compared to the month of November 2021. If it continues at this pace, it could exceed 5 million tons during the month.

What to expect from the corn market

The climate in South America will continue to be a very important factor in the evolution of planting. The National Institute of Meteorology (Inmet) projects heavy rainfall for all of Brazil, with the exception of the northeast and Rio Grande do Sul. However, according to Ruan Sene, market analyst at Grão Direto, rainfall in Argentina's producing belt will continue to be below average. average, maintaining concern with the evolution of planting and crop development.

In relation to exports, there are strong indications that December will be another very significant month in terms of purchases, competing with the domestic market, which is well supplied at the moment.

New developments regarding the conflict between Russia and Ukraine, which directly affect the flow of corn and wheat, will impact the supply of these cereals to the world, potentially causing movements in Chicago.

Given this, Brazilian prices may experience a week of appreciation, in relation to the previous week, with the movement of external demand in Brazil prevailing.