Soy and Corn: how the market behaved - 16/01/2023

The past week was, once again, marked by strong increases in Chicago prices, caused by the continued climate adversities in Argentina and the update of the numbers in the global supply and demand report. The contract due in January/23 ended the week being quoted at U$15,38 per bushel (+2,47%), and the one due in March/23 at U$15,28 per bushel (+2,41 %).

On the 12th, the US Department of Agriculture (USDA) updated global supply and demand figures. The report brought a reduction in the expectation of North American production by 1,90 million tons, which consequently reduced ending stocks by 4,5%. Furthermore, in South America, the department also presented reductions of 4 million tons in Argentine production. On the other hand, there was an increase to 153 million tons for Brazilian production. This scenario reduced world production by 3,16 million tons, negatively impacting final stocks.

In China, there is an expectation of an increase of 1,93 million tons, which caused a proportional decrease in import demand. As it is the largest consumer of the grain in the world, the country's economic reopening generates an increase in domestic consumption, which will lead to opportunities for exporting Brazilian soy.

Argentina's current harvest, still severely damaged by poorly distributed rains and high temperatures, continued to cause concern in the market. The Monthly Estimates report from the Rosario Commerce Exchange presented an expectation of a reduction in production of around 25%. If this is confirmed, it will be the third worst Argentine harvest since 2018.

The North American currency closed the week with a drop of 2,48%, closing Friday at R$5,11. The currency's weakness was caused by improving US inflation figures, which could result in a slower pace of US interest rate increases. Furthermore, domestically, the announcement of positive economic measures by the Minister of Finance also contributed to the fall, attracting a lot of foreign capital.

Despite the rise in Chicago, the fall in the dollar predominated in Brazilian soybean prices, causing a devaluation in relation to the previous week.

Soy: what to expect from the market?

This week will be shorter in Chicago, due to the “Martin Luther King Jr Day” holiday (16/01), in which the stock exchange will be closed. Additionally, the weather in South America and soybean exports will continue to be at the center of market attention. The North American currency should have another week of devaluation.

The National Institute of Meteorology (Inmet) projects continued 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.

Given the proximity of the Chinese holiday, the country may be less present in shopping during this week due to preparations for the “Lunar New Year festival”. China's return to the market will probably occur with the start of the harvest in Brazil, where the arrival of supply will affect prices in the physical market. This scenario is unfavorable for Chicago.

Given the expectation of a reduction in the rate of increase in US interest rates, Brazil becomes very attractive to receive foreign capital as interest rates are still at high levels. This scenario is strengthened by the announcement of positive domestic economic measures.

Given this scenario, the week could be marked by a drop in Brazilian prices, reflecting the devaluation of the dollar and a possible decrease in external demand.

Corn: how did the market behave last week?

The week was marked by the continuity of business in the domestic market, in which buyers were very interested in negotiating. This movement caused a slight appreciation of prices in the physical market. In relation to the external market, the World Supply and Demand Estimates report caused a lot of fluctuation in corn prices, which closed the week at US$6,76 per bushel (+3,52%) for the Mar/23 contract.

The World Agricultural Supply and Demand Estimates (WASDE) report showed a decrease in global production of 5,93 million tons for the 2022/23 harvest. However, the biggest demander of the grain, China, had an increase of 3,2 million tons in its production, which led to growth in domestic consumption and maintenance in the volume of imports.

The Buenos Aires Cereals Exchange (BCBA) showed, on the 12th, an increase of 47% in regular/bad crops, and a decrease to just 7% in good/excellent crops compared to last week. Furthermore, it is estimated that there will be a reduction of 600 thousand hectares of corn planting, resulting in a production close to 45 million tons in the 2022/23 harvest.

In relation to exports, the Foreign Trade Secretariat (Secex) reported, on the 09th, a volume of 1,8 million tons exported in just 5 working days. If it continues at this pace, it could close the month with record volume above 6 million tons.

Corn: what to expect from the market?

The climate in South America will continue to be a very important factor in the evolution of planting and crop development. The National Institute of Meteorology (Inmet) projects heavy rains for all of Brazil, with the exception of Rio Grande do Sul. In Argentina, the National Meteorological Service (SMN) signals the continuation of poorly distributed rains and high temperatures.

In relation to exports, they are expected to remain strong in January, given the scarcity of the cereal on the international scene. With the reduction of Brazilian stocks, the domestic market must be present to guarantee short-term supply, until the beginning of the harvest.

Therefore, Brazilian prices may experience a week of slight appreciation compared to the previous week, with heated demand prevailing.