Soy and corn: how the market behaved - 13/02/2023

For soybeans, the last week was marked by the update of world supply and demand figures by the USDA, reductions in production expectations in Argentina and North American exports. Therefore, the contract due in March/23 ended the week being quoted at U＄15,43 per bushel (+0,72%) and the contract due in May/23, at U＄15,33 per bushel (+ 0,46%).

The World Agricultural Supply and Demand Estimates (WASDE) report, released on February 08, presented updates to some numbers. Due to the low demand for North American exports, there was a 02% increase in US ending stocks. In Argentina, there was another decrease in production expectations, of 6,5 million tons, reflecting the climate adversity that the country has been suffering. This decrease also impacted the volume of exports of 4,5 million tons, consequently passing this demand to Brazil, which had an increase of 1,5 million tons in export estimates.

Still regarding the neighboring country, according to the Rosário Stock Exchange, in its latest production estimates report, there was another reduction in production of 7%, compared to February, which could be the smallest harvest since 2009. The data shows that there were few climate changes in the country, contributing to a possible confirmation of the United States report, which presented pessimism in relation to Argentina.

In relation to North American exports, China was very present in purchases, being responsible for around 65% of the total of 1,8 million tons. This number represents a 7% drop compared to the previous week. Brazilian soy, at this moment, is more attractive than North American soy.

The dollar had a week of great fluctuation, showing an appreciation of (+1,36%), ending Friday at R＄ 5,22. The Brazilian scenario was the main driver of the increase, given political conflicts with the Central Bank regarding current monetary policies, reinforcing the country's fiscal risks. Furthermore, in the external scenario, after the release of strong employment data, the representative of the US Central Bank reported that it could resume an accelerated pace of interest rate increases in the United States in the next meetings.

With the rise of the dollar and Chicago, Brazilian prices appreciated compared to the previous week.

What to expect from the soybean market?

The National Institute of Meteorology (Inmet) continues to indicate a lot of rain for much of the country this week, including in Rio Grande do Sul, which has been suffering from drought. In the Central region of Brazil, continued rainfall could cause further delays in the soybean harvest, which will intensify across the country from the first half of February onwards. In Argentina, the climate will continue to be dry and hot, further worsening the crop situation.

With the evolution of the harvest in Brazil, export numbers should continue to grow during the month of February, potentially marking the beginning of greater demand for Brazilian soybeans. China should be the main destination for the oilseed.

The dollar, despite the rise in the previous week, may continue its main downward trend. The maintenance of interest rates in Brazil at high levels, combined with the easing of monetary tightening by the US Central Bank, keeps Brazil very attractive.

Given this scenario, Brazilian prices could experience a week of decline, with the devaluation of the dollar and the evolution of the harvest prevailing, while climate forecasts are confirmed.

Corn

Last week was marked by the continued delay in planting the 2023 harvest, unfavorable weather conditions in South America and the update of global supply and demand figures by the USDA. Therefore, Chicago prices ended the week at U＄6,81 per bushel (+0,59%) for the contract expiring in March/23.

The World Agricultural Supply and Demand Estimates (WASDE) report, released on February 08, presented updates to some numbers. Due to the low demand for North American exports, there was an increase of around 02% in US ending stocks. In Argentina, there was another decrease of 2 million tons in production expectations, reflecting the climate adversity that the country has been suffering. This decrease also reflected in the volume of exports, consequently passing this demand to Brazil, which had an increase of 5 million tons in export estimates.

The export data released by the USDA report showed a decline with a lower export volume compared to last week. However, what prevailed on the international scene was the escalation of the war and European sanctions on Russia. Cereal exports have slowed down, mainly due to the difficulties that Ukraine has had in the export corridor, amplified by the recent attacks on the country.

The delay in the Brazilian soybean harvest continues to delay the planting of 2023 off-season corn. According to the National Supply Company (Conab), off-season planting continues to be delayed by 11,7% compared to the same period of the previous year. Mato Grosso sowed only 19,8% of its area, compared to 42,6% last year.

What to expect from the corn market?

The National Institute of Meteorology (Inmet) continues to indicate a lot of rain for much of the country this week, including in Rio Grande do Sul, which has been suffering from drought. In the Central region of Brazil, continued rainfall could cause further delays in the soybean harvest, which consequently impacts corn planting in the 2023 harvest. In Argentina, the climate will continue to be dry and hot, further aggravating the current situation of crops and potentially generate an increase in Brazilian demand.

Export numbers are expected to decrease in the coming weeks, however, the cereal supply scenario is expected to remain tight due to the crop failure in Argentina and the reduction in the Ukrainian harvest, added to the problems caused by the geopolitical conflict. This scenario should continue until the start of the harvest in Europe.

Tensions involving Russia and Ukraine, which impact corn exports, could bring a lot of fluctuation in Chicago, given the tight scenario mentioned above.

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