By the time the calendar had turned over to November the market’s focus had turned from the US harvest to Brazilian weather, says Chad Burlet of Third Street Ag Investments, LLC.
There were relatively few surprises or problems with the US harvest, but Brazil was enduring record rainfall in the south and record heat and dryness in Mato Grosso. By mid-month soybean futures had rallied almost 7% and some farmers were switching from soybeans to cotton. Fortunately, the weather improved, and a potential disaster was averted. Much uncertainty remains, but futures gave back half of those gains, and crop estimates have stabilized.
Argentina, which endured its worst drought in a century last year, is off to a very favorable start. Planting is on schedule and soil conditions are the best in four years. Equally, or possibly more important for Argentina, was their Presidential election where Libertarian Javier Milei upset the candidate from the Peronist Party. This is a once-in-a-generation opportunity for Argentina to make long overdue structural changes. It will be difficult because there are entrenched interests and because Milei does not have a major party behind him. Notwithstanding, his statements since the election and his early ministerial appointments have been well received by the center and the right.
Elsewhere in the world, the Black Sea continues to provide daily headlines but their impact on prices is greatly diminished. The Humanitarian Corridor that was designated by Ukraine is operating well and helped put November exports only slightly behind last year. Unfortunately, parts, labor, and low prices are taking a toll on the farmers and their winter wheat acres are down 10% from last year.
Back in the US, agricultural prices in general were supported by the weaker dollar. With the expectation of lower interest rates, the dollar index lost more than 4% before recovering late yesterday and today. Wheat tends to be one of the more currency-sensitive commodities and both Chicago and Kansas City appear to have broken out of four-month downtrends this week.
For US corn and soybeans all roads seem to lead back to Brazil. The first question, as noted above, goes to Brazilian weather and production, but the immediate follow-up goes to the question of prices. Who is the cheapest seller? For far too long, as far as US corn producers are concerned, Brazil has been cheaper. However, as we look forward to the first quarter the US is the cheapest, particularly off the West Coast. The low water problems along the Panama Canal are hurting shippers out of the US Gulf.
For soybeans, the US window of opportunity is much smaller. Brazilian soybeans are priced at a significant discount for February, but slow early-harvest logistics should allow the US to compete for some of that business. The US is also benefitting from a good round of buying by Sinograin, the State-Owned Entity that manages China’s government-owned reserves. They’ve found that US soybeans store better long term so they continue to buy US soybeans when price alone might point them in a different direction.
Looking ahead we continue to watch new crop prices and analyze what planting signal they are sending to US farmers. The current relationship favors soybean planting over corn planting, and we could see a shift as large as four million acres versus last year. We view a November soybean vs December corn ratio above 2.6:1 as a selling opportunity and anything below 2.35:1 should be bought.
Learn more about Chad Burlet at Third Street Ag Investments.