Soy: how the market behaved - 27/02/2023

The past week was marked by many fluctuations in Chicago's prices. Speculation continues about crop failure in Argentina, the delay of the Brazilian harvest and there was also the release of the first figures on forecasts for the North American harvest. Therefore, the contract due in March/23 ended the week being quoted at U＄15,29 per bushel (-0,13%) and the contract due in May/23, at U＄15,19 per bushel (- 0,13%).

The Outlook Forum of the United States Department of Agriculture (USDA) indicated that the 2023/24 harvest should not have an increase in area, but should increase productivity, potentially having a harvest with record numbers, totaling 122,74 million tons. The market expected an increase in planted area. However, given the excellent production expectations, it interpreted the data as favorable for an increase in world supply, putting downward pressure on Chicago.

Once again, the neighboring country, Argentina, recorded a considerable worsening in the conditions of its crops. According to the Buenos Aires Cereals Exchange (BCBA) report, there was an increase to 60% in fair/poor conditions, along with an increase to 37% in normal conditions, and a reduction to 3% in excellent/good conditions. compared to the previous week.

This scenario intensified with the worsening of farming conditions, mainly due to the frosts that recently occurred in the lowlands of the main producing regions. The weather conditions in Argentina are confirming the crop failure already expected by the market, meaning that the country has an expectation of a reduction of 10 million tons in production volume in relation to the last harvest, which, according to the report from BCBA's production expectation is 33,5 million tons, compared to 43,9 million tons in the last harvest.

The harvest in Brazil continues to be delayed compared to the previous year, and is also the second biggest delay in the last 5 years, according to the National Supply Company (CONAB). Also according to the company, the regions that have the most significant delays, in relation to the previous harvest, are Mato Grosso do Sul (27%), Tocantins (20%) and Goiás (13%).

The dollar had a shorter week, due to the Carnival holidays, ending Friday at R＄ 5,20 (+0,78%). The external scenario was the main driver of prices during the week, where the reduction in unemployment insurance claims and the increase in the North American GDP rate presented a certain optimism to the market. This reaffirms the downward trend in the pace of interest rate increases in the US.

Even with the rise in the dollar, supply pressure, with the arrival of Brazilian soybeans, coupled with rising freight prices, caused a week of slight devaluation of Brazilian prices.

What to expect from the soybean market?

According to the American Oceanic and Atmospheric Agency (NOAA), climate forecasts continue to indicate high levels of precipitation in producing regions, with emphasis on the Midwest, South and Southeast regions of the country, which if confirmed for next week, could cause an even greater delay in harvesting the soybean crop.

The main grain transport ports have already exhausted their shipping quotas for March, precisely due to the large volume negotiated for delivery within the month. If there is no acceleration in exports, we could see a drop in demand in the short term, putting pressure on prices downwards.

The dollar could have a very fluctuating week, mainly due to speeches by several directors of the North American Central Bank. The market will be closely watching each of their prospects for upcoming US interest rate hikes. This could continue to attract investors to the country.

Despite the rise in the dollar, fundamental factors in soybean supply are expected to prevail, with the possibility of a continued drop in prices in the Brazilian physical market, compared to the previous week.