Soy and corn: how the market behaved last week - 06/02/2023

The last week was marked, once again, by the weather conditions in South America, especially in Argentina. In addition, important economic data from the macroeconomy affected agricultural commodities. Therefore, the contract due in March/23 ended the week being quoted at U$15,32 per bushel (+1,32%) and the one due in May/23, at U$15,26 per bushel (+1,26. XNUMX%).

The drought in Argentina continues to cause a lot of interference in Chicago prices. The occurrence of occasional rains in the last week resulted in a slight improvement in crop conditions, according to the Buenos Aires Cereals Exchange (BCBA). However, according to the report itself, precipitation levels for the month of February are low, with a forecast of reaching 25mm by the second week of the month, which could affect later crops.

The United States Department of Agriculture (USDA) attaché in Buenos Aires projects production of 36 million tons, a drop of more than 20% of the initial projection. This scenario is still putting pressure on Chicago.

In Brazil, the harvest continues to progress with delay due to the high volume of rain in certain regions. According to the National Supply Company (Conab), MT has the biggest delay among the states, around 15% compared to the same period last year. Minas Gerais is 9% behind.

The dollar had a week of great fluctuation, marked by the release of economic data in Brazil and abroad, showing an appreciation of (+0,78%), ending the week at R$5,15. In the USA, there was a decision on interest rates, which came as expected by the market (increase of 0,25 percentage points), leaving the rate at levels of 4,5% to 4,75%. In addition, new job creation data (Payroll) came out, which came in well above market expectations.

This number shows that the North American economy is heated and that to control inflation, the central bank will have to increase interest rates or extend their period, given that at the last meeting they announced a decrease in the rate of increases.

Despite the rise in Chicago and the dollar, Brazilian prices at this period of the year are marked by the drop in physical market prices, caused by the arrival of Brazilian soybeans on the market. These declines are becoming more accentuated precisely due to the expectation of a record harvest that will be confirmed as the harvest progresses.

Soy - what to expect from the market?

In Brazil, according to the National Institute of Meteorology (Inmet), there will be precipitation spread across agricultural areas, focusing on the southeast of the country, with levels of 25 to 100mm. In the Central-West and North, rainfall will be lower, between 10 and 50mm, which may contribute to the advancement of harvests. In the south of the country, the forecast continues for little rain, maintaining unfavorable weather conditions. Brazil's internal conditions should greatly influence physical market prices, which may show devaluations as the harvest progresses.

This week the World Agricultural Supply and Demand Estimates (WASDE) report will be released, which will show decision data for the North American planting area. There is an expectation of a reduction in the area for planting by the market compared to the previous year in the United States. This information could put upward pressure on Chicago's shares.

The dollar, despite the rise on Friday, may continue with its main downward trend, the maintenance of interest rates in Brazil at high levels, added to a cooling of monetary tightening by the US Central Bank, keeps Brazil very attractive .

Given this scenario, Brazilian prices could continue their downward movement, pressured by the fall of the dollar and the evolution of the harvest.

Corn

Last week was marked by the delay in planting the 2023 harvest, specific improvements in farming conditions in Argentina, favorable weather for planting and the resumption of Chinese purchases with the expectation of an increase in demand.

The delay in the soybean harvest has been delaying the planting of 2023 off-season corn. This scenario worries Chinese industries that are counting on this corn arriving on the market in mid-June and July. Brazilian corn becomes more attractive at this time of year due to the supply that reaches the market with the safrinha harvest and, knowing this, China has already made purchases for shipment in June/23.

In relation to Brazilian corn exports, there was a record export volume in January, reaching around 6,3 million tons, according to the Export Secretariat (Secex). This volume was very atypical for this time of year, reinforcing the interest of other countries in Brazilian corn.

In Argentina, farming conditions improved significantly, with an increase of around 10% in good/excellent conditions, a 7% reduction in poor/very poor conditions and a 3% decrease in regular/normal conditions. Such improvements put downward pressure on Chicago prices, ending the week at U＄6,77 per bushel (-0,88%) for the contract expiring in March/23.

Corn - what to expect from the market?

Given the expected climate and precipitation in a large part of the Brazilian territory, it is expected that there will be a decrease in rainfall levels, which will favor the internal scenario in relation to the progress of the soybean harvest. Given this, there is the expectation that with the oilseed harvest, corn planting will intensify, taking advantage of more favorable sowing conditions in cereal crops.

In view of China's announcement that it wants to increase the volume of corn in rations, consumption of the cereal can be expected to increase by around 10%. This could contribute to an increase in demand, as China will begin purchasing Brazilian corn with greater volume intensity. This fact, if confirmed, could cause prices in the physical market to rise, and the domestic market would have to follow this increase by reducing its profit margins.

Given this scenario, corn presents a tight balance sheet perspective due to the high demand for the harvest period, therefore, during this week, planting seasonality is maintained.