Volatility remains high to start the year in the grains and oilseed space, with a combination of weather
and political tensions at the forefront.
From the weather standpoint, soybeans have seen the largest swing as of late, as flash drought for southern Brazil and Argentina has had analysts aggressively paring back on yield estimates. All throughout fall, the market seemed content to price in near near-perfect crop out of South America, with estimates for 144+ million-metric-ton (mmt) crop for Brazil being the norm for the last six months. Trade has had to put a whole lot of risk back on the table in a small amount of time, due to changing weather conditions and estimates for some 20–30 mmt of crop losses. Key development periods for Brazilian soybeans are now past and focus going forward will rely on actual yield data as harvest progresses. Central Argentina weather will also be key through end of February, as crop remains in key development stages. Outside of supply, demand remains solid for soybeans going forward. Crush pace remains strong with margins still sitting at four-year highs. Old crop exports are likely to lag going forward, as Brazilian soybeans dominate world market. Although, continued interest from China is being seen for U.S. new crop beans. The next key event to watch will be planting intentions and the U.S. growing season. Tight world stocks will once again cause heightened attention this spring/summer season.
The corn market has also seen considerable risk premium built in over South American weather concerns. Estimates for Brazil’s first crop corn, have seen reductions, however, of bigger importance to trade will be second crop corn which makes up the majority of Brazilian production. With the fast pace of soybean plantings last fall, it has so far led to a very quick planting pace for second crop corn. Typically, this corresponds to better yields, as it pulls the pollination period for the crop farther ahead of the dry season, which usually reduces the risk of drought stress. That being said, no two years of weather are the same, and tight world supply will still keep heightened focus on second crop corn weather.
On the demand side, ethanol production and exports remain strong in the U.S. and U.S. corn remains competitive in the world feed trade. World supplies are tight and the bulk of South American supply will not hit the market until summer. Focus will soon shift towards U.S. growing season and initial planting intentions. As of late, the ratio between beans and corn has favoured corn acreage expansion. However, since the start of the year, November 2022 soybeans have been gaining on December 2022 corn. Additionally, very expensive fertilizer costs may also make it tough to see much corn acreage expansion year-over-year.
The wheat market has not been spared the volatility after the major run-up seen in the fall on poor U.S. and Canadian crops. Prices, however, were able to find some relief on larger-than-expected Australian and Argentinian crops, which took some pressure off the world market. U.S. exports have remained lackluster, as the U.S. market has kept a high-enough premium to world prices to discourage non-traditional export business. Political risk is high in the wheat market, as tensions between Russia and Ukraine are keeping the market on edge. Outside of this, news for the wheat market will likely be quiet until crops begin to come out of dormancy across the U.S., and trade focuses on spring weather. Crop conditions for winter what in the U.S. are relatively low with the majority of the major growing states rated between only 7–36% good/ex. Typically, fall/winter crop conditions are not great indicators of final yield, as spring weather plays the largest key. But with over half the crop in areas experiencing drought, the large temperature swings throughout the winter and the inland hurricane across most of Kansas, some irreversible damage could have been done to this crop and likely warrants increased focus on spring weather this year.