Soy and corn: how the market behaved last week - 30/01/2023

The previous week was, once again, marked by weather conditions in Argentina, the delay in the harvest in Brazil and the increase in sales of North American soybeans. In view of these events, the contract due in March/23 ended the week being quoted at U＄15,12 per bushel (+0,20%), and the contract due in May, at U＄15,07 bushel (+0,20 .XNUMX%).

According to the report from the Buenos Aires Grain Exchange (BCBA), on 26/01, there was an improvement in the climate, with greater rainfall than the last projection in Argentina. This condition favored the neighboring country, which presented a reduction in the percentage of poor/very poor crop conditions, consequently putting downward pressure on Chicago.

Furthermore, the report also presented the evolution of sowing in Argentina, which covers 98,8% of the projected area. This recent planting is expected to receive more favorable weather conditions for its development, given more optimistic forecasts for next week.

In Brazil, progress in harvesting the crop still continues with delays in some regions of the country, caused both by delays in planting and by high levels of rainfall that contributed to this delay in harvesting. An example of this is the comparison of harvest data in the state of Mato Grosso, by the National Supply Company (CONAB), which shows a delay of 8,4% compared to the same period last year. In the total planted area in Brazil, there was a delay of 3,5%.

Regarding net sales of North American soybeans, there was an increase of 16% compared to the previous week, reaching around 1,15 million tons, according to the United States Department of Agriculture (USDA).

Furthermore, China was the main buyer, representing 80% of this volume, presenting extra optimism about strengthening Asian demand in the coming weeks.

The US currency closed the week down -1,92%, ending Friday at R＄5,11. The international scenario was marked by US inflation and Gross Domestic Product (GDP) data. Despite the positive numbers announced, caution about the risk of recession in the United States still remains.

Therefore, in Brazil, the internal scenario remained stable and conducive to the entry of foreign capital, as it has the highest real interest rate among emerging countries. Due to the significant drop in the dollar, there was a devaluation in Brazilian prices compared to the previous week.

What to expect from the soybean market?

According to the climate forecast from the National Institute of Meteorology (Inmet), Brazil will have high levels of precipitation, mainly in the Center-West, with volumes between 25 and 100mm. This scenario will be favorable for crops, but may delay harvesting in some specific areas that have already started.

In Rio Grande do Sul, the forecast remains in a critical scenario in relation to rainfall levels. For Argentina, the National Meteorological Service (SMN) signals the continuation of more voluminous rains in much of the producing belt. If all these conditions are confirmed, it could cause an improvement in crop conditions, consequently putting pressure on Chicago prices.

This week, China returns to the market after the end of the Chinese New Year holiday. This return is expected as the market believes in an increase in purchases by the Asian country, which has seen a decrease in its soybean stocks. Adding the record production factors in Brazil, and China with decreasing stocks, generates an expectation that purchases of Brazilian soybeans will intensify with the recovery of the largest soybean importer in the world.

The dollar will have a week of great fluctuations, ahead of the United States Central Bank meeting, which is expected to increase the North American interest rate by 0,25%. Brazil's internal conditions should greatly influence the value of the dollar, but the downward movement should predominate. The country remains very attractive to receive foreign capital, and this investment in the Brazilian economy puts downward pressure on prices.

Given this scenario, the week could be marked by a drop in Brazilian prices, mainly due to the fall in the dollar and the intensification of the harvest in Brazil.

Corn: how did the market behave last week?

Last week was marked by the beginning of a drop in external demand for Brazilian corn, the geopolitical conflict between Russia and Ukraine and the resurgence of North American exports. Therefore, corn prices on the Brazilian stock exchange had significant drops, ending the week quoted at R＄87,85 per bag (-2,93%) in the March/23 contract, being detached from the Chicago stock exchange, in which it ended on Friday (27) being quoted at U＄6,83 a bushel (+0,89%) for the March/23 contract.

In the last week there were drops in corn prices, according to the Center for Economic Research (CEPEA). The price indicator is based on the various cities around Campinas-SP. Accordingly, we can observe a decrease in physical market prices. This fact is due to the attention focused on the soybean harvest, and because summer corn is more focused on the domestic market.

The conflict between Russia and Ukraine has once again attracted market attention. After the announcement of the sending of US and German tanks to Ukraine, Russia attacked the Ukrainian country with missiles in retaliation for the announcement. This affected the operation of the Port of Odessa, which is the country's main cereal exporter. This scenario casts doubt on the cereal supply to the world this year.

Regarding North American corn exports, there was an increase of 28% compared to the previous week, reaching around 912 thousand tons, according to the United States Department of Agriculture (USDA). Mexico was the main buyer, representing 40% of this volume, and China was the last, with just 71 thousand tons.

What to expect from the corn market?

According to the climate forecast from the National Institute of Meteorology (Inmet), there will be heavy rain across Brazil. This scenario will be favorable for developing crops, but may delay the planting of the 2023 off-season due to the delay in harvesting the current soybean crop. For Argentina, the National Meteorological Service (SMN) signals the continuation of more voluminous rains in much of the producing belt. If all these conditions are confirmed, there could be continued improvement in crop conditions.

In the USA, the market is already starting to look at the expected area for planting corn and soybeans. The North American crop differs from the Brazilian one in that it plants corn and soybeans in a single crop during the year, so the crops compete for planting area. Since corn has better levels in terms of cost/return, an increase in the area dedicated to corn planting can be expected.

Therefore, Brazilian prices may experience a week of devaluation in relation to the previous week, with the drop in external demand prevailing.