Soy and corn: how the market behaved - 03/04/2023

The previous week was marked by the update of North American planting intention and quarterly stocks figures, increases in oil and soybean meal derivatives and the fiscal framework. Therefore, the contract expiring in May/23 ended the week being quoted at U＄ 15,05 per bushel (+5,32%) and the contract expiring in July/23 closed at U＄ 14,75 per bushel ( +4,83%).

In the US quarterly planting intention and stock volume report, released on Friday (31/03), it was reported that the soybean planted area will be 34,41 million hectares, the same area as the previous harvest and below than expected by the market. The quarterly soybean stock was 45,8 million tons, also below market expectations, resulting in a positive impact on prices in Chicago.

Soybean oil and meal had a positive week, helping soybean prices in Chicago. Oil rose 4,17%, following the rise in oil and its correlation with biodiesel. Bran, in turn, rose 4,70% due to the low volume of exports from Argentina, the world's largest exporter, due to the crop failure that has already occurred.

According to the National Supply Company (Conab), approximately 70% of Brazil's soybean crop has already been harvested, which represents around 105 million tons harvested out of a total estimate of 150 million tons. Soybean prices fell with the increase in supply due to the advance of the harvest, but stabilized in the previous week.

According to Grão Direto market analyst Ruan Sene, this occurred because buyers needed to guarantee the origin of the soybeans and many producers chose to store the grain.

Last week, the dollar suffered a significant drop, reflecting the new fiscal framework presented by the federal government. At the end of Friday, the American currency was quoted at R＄ 5,07 with a devaluation of -3,43%. Although the proposal to control public spending still needs to be approved in Congress, the market reacted positively to the measure, given that inflation remains at high levels.

Ruan Sene believes that despite the significant drop in the dollar, Chicago's rise prevailed, showing slight appreciation for Brazilian prices compared to the previous week.

What to expect from the soybean market?

During this week, the market will continue to analyze the new numbers released by the USDA. Additionally, China's absence from the market between Monday and Wednesday due to the "Ching Ming Festival" will likely result in a reduction in business volume and have a negative effect on Chicago, as China is a large buyer of products. US agriculture. On Friday, many countries, including Brazil and the United States, will have a "Good Friday" holiday.

The Argentine grain inspectors union (URGARA) announced a national strike from midnight on 31/03/2023, demanding a salary increase. The stoppage could delay the loading of the 600 thousand tons that are scheduled for export. For Brazil, if Argentina delays its shipments of soybean meal, the market may turn to Brazilian meal, which could result in an extension in the stability of premiums or even an improvement in purchase offers.

For the dollar, the week could be marked by the continued devaluation of the currency in relation to the Brazilian currency. On Thursday, there will be the release of employment data in the US, which will indicate the health of the North American economy and, consequently, affect the value of the dollar in relation to other currencies, including the real.

According to Grão Direto market analyst Ruan Sene, the scenarios described could result in a slight appreciation in Brazilian prices, compared to the previous week.

How has the corn market behaved in the last week?

The previous week was marked by the update of North American planting intention and quarterly stocks figures, the start of the harvest in Argentina and Brazilian exports. Given this, Chicago prices ended the week at U＄ 6,58 per bushel (+2,17%) for the contract expiring in May/23. The Brazilian physical market had a week of slight appreciation.

During the week, the market paid attention to updates released by the US Department of Agriculture (USDA). The report showed that the North American quarterly inventory was 187,98 million tons, about 1 million below market expectations. However, the planting intention report for the 2023/24 harvest indicated an area of ​​37,23 million hectares, 1,4% above what the market expected. In this scenario, the American producer is opting to plant more corn instead of soybeans, due to better profitability.

The harvest of the Argentine corn crop has begun, and the first figures presented by the Buenos Aires Cereals Exchange indicate a production of 36 million tons, which represents a 30% drop in relation to the initial projection. This scenario reinforces the reduction in the world supply of corn and increases attention on the development of the 2nd harvest in Brazil and the USA.

Despite the downward movement in export volumes, compared to previous months, Brazil has still maintained prominence in the historical context. According to the Export Secretariat (Secex), purchases from Japan, South Korea and Colombia are compensating for China's absence. Secex also predicts that export volume in March should exceed 1,3 million tons, which represents the highest volume in the last 7 years.

What to expect from the corn market?

Weather conditions will continue to be closely monitored by the market, given the development of 2nd harvest corn. According to the National Oceanic and Atmospheric Administration (NOAA), this week will see significant rain in the Central-North region of Brazil, maintaining the expectation of high Brazilian production.

Demand for corn produced in the United States is likely to remain high, as the country currently has sufficient and affordable volumes (compared to Ukraine and Brazil) available for trading. However, it should be reduced this week due to the absence of China and holidays around the world.

The satisfactory development of corn crops has been putting strong downward pressure on Brazilian stock exchange prices (BM&FBovespa). On the other hand, the domestic market is still heated and should hold down prices in the physical market, alleviating some of the negative bias. However, the week could still be marked by continued decline.