Soy and Corn: how the market behaved - 09/01/2023

The last week was shorter in Chicago due to the New Year holiday on Monday (02/01). The market continued to closely monitor the climate situation in South America and the uncertainties of an impact on Chinese consumption, given the evolution of coronavirus infections. As a result, the contract expiring in January/2023 ended Friday at US$15,01 per bushel (-1,18%). The contract expiring in March/2023 fell more sharply, closing the week at US$14,92 per bushel (-2,10%).

The rains in Argentina over the weekend brought momentary relief to the market, putting downward pressure on Chicago prices, however, the situation still remains quite delicate. Argentina's 2022/23 harvest has been suffering from adverse weather conditions since planting began in November, and this has brought a lot of speculation about the country's real production potential.

This scenario is proven in the weekly report on crop conditions, released by the Buenos Aires Cereals Exchange (BCBA), which, on the 05th, brought an increase to 38% in regular/poor crops, and a decrease to 8% in good/excellent crops. When comparing this information with that related to the 2021/22 harvest, the numbers are worrying, as in the previous harvest 50% were in good/excellent conditions and only 13% in fair/poor conditions.

In Brazil, Rio Grande do Sul is the one that most worries the market given its representation, among the top 3 producing states. A drop above 15% in the Rio Grande do Sul region could bring national production to levels below 150 million tons. Despite the impact, it remains a record production for Brazil.

Finally, the continued increase in coronavirus contamination in China, alongside suspicion of possible underreporting of deaths, raises alarms about the country's economic recovery. The increase in demand, given the proximity of the Chinese New Year holiday, is still awaited by the market, despite some pessimism. The American currency had a week of great fluctuation, closing Friday at R$5,24 (-0,76%).

The internal scenario, once again, was the main driver of the weekly drop. The market's expectation is that there will be a more adjusted ministerial team for the new government, mainly related to the economy, after a week marked by several controversial statements made by the new members. With the fall of Chicago added to the fall of the dollar, Brazilian soybean prices had a week of devaluation in relation to the previous week.

Soy: what to expect from the market?

This week there will be the release of the World Supply and Demand Estimates Report (WASDE), which should cause a lot of volatility in Chicago. It is expected that there will be a reduction in production estimates in Argentina and maintenance of Brazilian production. If confirmed, there could be an increase in the value of Chicago.

Furthermore, the climate of South America will continue to be in the spotlight. The National Institute of Meteorology (Inmet) projects heavy rainfall for all of Brazil, with the exception of Rio Grande do Sul, which will continue to be in a critical situation. The National Meteorological Service (SMN) signals the continuation of poorly distributed rains and high temperatures in Argentina. If these conditions are confirmed, it could continue to put upward pressure on Chicago prices.

China may be more present in shopping this week as the New Year approaches, which begins on the 22nd. This event is marked by an increase in consumption due to typical festivals. Even with an increasing increase in contamination, the celebrations will take place normally, it seems.

Tensions related to the invasion of the National Congress, Palácio do Planalto and STF (Supreme Federal Court), could cause the appreciation of the American currency in the market, causing risk aversion for investors. Given this, the week could be marked by the appreciation of Brazilian soybeans, compared to the previous week.

Corn: how did the market behave last week?

The week was marked by the revival of business in the domestic market, where buyers were very interested in negotiating, however, some sellers held on to the product, hoping to obtain better prices later on. This movement led to an increase in prices in the physical market. In Chicago, the week saw a drop in prices, closing the week at US$ 6,53 per bushel (-3,69%).

In relation to the 2022/23 harvest in Brazil, planting continues to evolve and crop development remains in satisfactory conditions throughout Brazil, with the exception of Rio Grande do Sul. According to the "Conjunctural Information”, released by Emater/RS , on the 05th, the water deficit persisted in most of the state, with consolidation in productivity losses.

After the record volume exported from Brazil in 2022, international sales have already started the year very strong. The National Association of Exporters (Anec) forecasts exports of over 4 million tons for the month of January, doubling the volume of the same period last year. In addition, 22 ships carrying corn to China were tracked, which, if confirmed, would already have a volume of around 1,73 million tons.

This Brazilian export movement is being strengthened at the moment, mainly due to the delay in releasing ships from Ukraine. In Ukraine's agreement to transport grain through the Black Sea, signed last year, all ships are inspected by joint teams, and this has caused a longer than normal delay, with vessels waiting on average for more than a month to be released. Given this, Brazil appears as a great substitute.

Corn: what to expect from the market?

The climate of South America will continue to be in the spotlight. The National Institute of Meteorology (Inmet) projects heavy rainfall for all of Brazil, with the exception of Rio Grande do Sul, which will remain hot and with low rainfall, maintaining the critical scenario. In Argentina, the National Meteorological Service (SMN) signals the continuation of poorly distributed rains and high temperatures.

Regarding exports, contrary to initial expectations, they are expected to remain strong in January. With the reduction of Brazilian stocks, the domestic market must be present to guarantee supply until the arrival of the current harvest.

New developments regarding the easing of measures against Covid-19 in China and the regularization of Ukrainian exports could impact prices in Chicago and, consequently, Brazilian corn.

Given this, Brazilian prices may experience a week of appreciation in relation to the previous week.