We caught up with Benjamin Bodart, director, CRM AgriCommodities, to hear more.
“The focus has now shifted from Brazil to Argentina in terms of likely weather impact on growing conditions for soybeans and corn in South America, as rains have fallen in all the main producing regions in Brazil in the past few weeks allowing sowing to advance. The soybean plantings there are in line with last year’s pace, estimated around 80% complete.”
Now the attention of market operators is moving south: “Argentina is really key at the moment for the oilseeds market and, in particular, soybean meal. It is the largest exporter of soybean meal in the world and there are a lot of different weather models predicting La Niña.”
La Niña
As La Nina approaches, typically, there would be dry conditions in Argentina and wet conditions in Australia, particularly for the eastern coast: “And that is what we are starting to see,” said Bodart.
“There needs to be some rains by mid-December in the central part of Argentina; otherwise all the market analysts will start to lower their production forecast for corn and soybeans for [that Latin American country].”
The weather market lies ahead, said the analyst.
Though the recent WASDE report from the US Department of Agriculture (USDA) surprised the market and hammered soybean prices, the La Niña concerns have prompted global soybean prices to climb again.
“The expectation was that the USDA would revise downward its US soybean yield forecast but it kept that unchanged - at 49.5 bushels per acre. We saw soybeans retreating, significantly, on the release of the report but, since then, the weather in South America has been key for prices.”
Moreover, the funds have been aggressive buyers of soybean and soymeal because of the weather related concerns over Argentina, said Bodart, citing data from the CFTC, the US body providing insights about the funds.
“We cannot be complacent about the soymeal prices at the moment.”
“We remember what happened in 2016, when there was severe flooding in Argentina – in March and April – and we saw soymeal prices rocketing by more than 50% over the subsequent two months.
“We have already recommended to our buying clients to be careful, to be well protected for the winter, in anticipation of any weather event.
“We advised them to be covered when soymeal was trading at US$305 per short ton; this morning, it was trading at around US$320. Right now, it looks like it is a good strategy,” cautioned the analyst.
Meanwhile, India announced on Friday [17 November] that it has raised the import duty on crude palm oil to 30% from 15% and on refined oil to 40% from 25% in a bid to curb cheaper shipments and boost local prices for supporting farmers and refiners. India imports palm oil mainly from Indonesia and Malaysia, and a small quantity of crude soft oil, including soybean oil from Latin America
“In the short term that is good news for the buyers, as [the prices of] soybean and rapeseed would go down. But medium term, we have to be cautious - if there is less demand for oil, there would be less crushing and then less meal, as a result, being produced.”
Wheat
For cereals, everything is looking fine currently, but any weather stories in the Black Sea or weather concerns linked to La Niña in Australia and South America could see a 10 to 12% rally in European wheat prices, continued the analyst.
“It is all based on the Russians being able to fulfill the demand. They have been quite lucky in the sense that the winter is late in Russia so they have been able to export more than anticipated by the market. Prices have stabilized to US$190-192 per ton on a spot FOB basis. It means that wheat is already cheap, they don’t necessarily need to see lower prices, but with the arrival of the winter, we anticipate demand for European wheat exports to pick up, and that is when we will see a rise in prices.”
He said the current low prices for wheat, particularly in Europe, make it a buying market. “On the Euronext, prices are close to contract lows - at around €158 per ton for the December ’17 contract – providing opportunities to buy.”
Corn
He said speculators are playing a dangerous game in relation to corn:
“Now the harvest is complete, US farmers know what yields they have got and they know their storage needs. They are not under any sort of financial or storage pressure to sell their crop. The funds are short; they are betting on lower prices for corn. However, it might be difficult to see such a bearish trend continuing, now, that there could be a reduced corn crop in Argentina because of the risk of La Niña. Furthermore, with soybean plantings a bit late in Brazil, when farmers are going to plant their second corn crop in Brazil, the crops could also be at a higher risk of experiencing dry and hot conditions during the flowering period, resulting in a lower second corn crop there.”
He said that, at some point, the funds would have to close out their short positions, and buy corn. “A sudden demand for corn will see a price spike.”