Brazilian Soy Acres Up 55% & Demand for U.S. Soybeans & Corn
Demand for U.S. corn and Fund rebalancing are likely responsible for the sell off in the market this week. Analysts estimate that the USDA could have over stated corn used for ethanol by 100 to 200 million bushels. We also know that U.S. corn exports have been trailing export totals of 2021. What we don’t know is how big will the 22/23 carryout become if these demand issues don’t turn around.
Soybeans have also had a rough week in the markets but to this point the MAR23 futures price has not pushed below the $14.72 support. Demand support for soybeans is doing all right and soy crush demand is strong with good profit margins. The plan for the expansion of U.S. crush facilities is still a long-term positive in the soybean market.
Brazil’s newly elected president, Lula da Silva is planning to end the illegal deforestation of the Amazon. During a speech this week he said, “We will do whatever it takes to have zero deforestation.” This is a complete turn-around from policies of outgoing president Bolsonaro who cut funding and staffing for environmental agencies while in office. The goal to end deforestation will not be an easy task to achieve as many of Bolsonaro’s allies still control many state governments located in the Amazon region as well as 40% of the nation’s congress. One former government official explained, “It’s an economic equation…There are a lot of electoral strongholds in the Amazon where politicians benefit from the deforestation, land invasions and illegal logging.” Over the past 10 years soybean acreage in Brazil has increased by 55%. In 2013 farmers in Brazil harvested 68 million acres of soybean and this year they are expected to harvest 106 million acres.
The well respected private group StoneX has updated their Brazilian soybean production estimates based on customer surveys this week. The latest soybean crop estimate is down to 153.8 MMT vs the earlier projected estimate of 155 mmt, still far above the previous record of 139.5 MMT. They have also lowered the corn estimate from 130.3 MMT down to 128.7 MMT. Like soybeans this reduced corn production estimate is still record high, the previous record was 116 MMT harvested in 2022.
The crop conditions in Argentina have not been as favorable as they have been in Brazil. Temps in Argentina have been running 5 to 10 degrees above-normal while at the same time receiving below-normal precipitation. Key corn and soybean growing regions in Argentina did receive some rainfall last weekend but since October 1st this region has only received about 50% of the normal precipitation while most key regions in Brazil have seen 70-95% of normal rainfall. The abnormally hot and dry conditions have reduced crop ratings for both corn and soybeans. The latest soybean GD/EX ratings were down 2% from last week to only 8%; 54% of the soy crop is rated Fair, a fall of 8% from the previous week. This leaves 38% of the crop listed in Poor Condition an increase of 10% from a week ago. The corn crop conditions are fairing somewhat better at the moment with 13% listed GD/EX -2% lower, 55% listed as Fair -2%, and 32% listed in Poor Condition +2% from last week.
Covid rates in China are skyrocketing. A doctor that works at one of Shanghai’s premier medical facilities estimates that 70% of the cities 25 million residents have been infected with the virus. Funeral homes are full and are struggling to deal with the quickly increasing death toll. Adding to the misery the latest economic data released last weekend was poor and manufacturing activity fell for the 5th month in a row. The Chinese government is trying to keep the citizens focused on a “final victory” over the virus. The state run media outlet, Peoples Daily said, “China and the Chinese people will surely win the final victory against the epidemic.”
Water levels along the Mississippi River are at a very Low Stage of just 0.54 feet in Memphis, TN down from 9.72 feet a week before. Water levels are expected to rise quickly over the next few days as strong storm systems have put down a decent amount of rainfall. The graph below shows observed (blue) water levels and predicted (purple) levels for Memphis, TN.
The week ahead looks much warmer and drier than the last several weeks have been. What is really amazing is the temperature outlook for January 10th-20th according to the EURO model shows that most of North America will see above-normal temps during, what is usually, the coldest time of the year. The second map from the GFS still shows much above-normal temps for the eastern half of North America.
Enjoy it while you can the EURO model in the next photo is indicating a return to reality around January 22nd. From there it’s likely we will see much lower temps for the remainder of the month.
The MJO (Madden Julien Oscillation) expects the warmers temps to be much shorter in duration lasting only through January 11th as we begin to move through phases 8, 1 and 2 which are the coldest phases for January. The models below show the three phases and what each will mean for temperatures.