Even with splashy headlines, weather still may be the big market mover in commodities
This past week's market action was choppy and volatile with numerous large items capturing the trade's attention — the U.S. election, Federal Open Market Committee meeting and the monthly U.S. Department of Agriculture report. They were big topics that ruled headlines and trade for the week. Still, there are other market factors that didn't receive as much market attention this past week which could have a longer impact on market action. For corn and soybeans, I have been closely watching Brazil's weather and planting updates.
After a delayed start to their wet season, soybean planting in Brazil is quickly making up for lost time. As of Nov. 1, soybean planting in Brazil is reported to have progressed to nearly 53% complete. That is ahead of last year's pace which was reported at just over 50% during the same time period. In Mato Grosso, Brazil's largest producing state of both corn and soybeans, soybean planting is reported at nearly 80% complete. It's an impressive amount of progress. Just two weeks ago, planting was reported at only 25% complete compared to the five year average of 45%.
In a span of just two weeks, producers in Mato Grosso planted about 55% of their intended soybean acres, all within their optimal planting window. While great news for producers there, it all but shuts down a planting delay story for the soybean market. Not only that, it also relieves any potential planting delay for their second crop corn (the safrinha corn crop) in late January to February. While soybeans seem to pick up South American planting fears this time of year, it's important to remember that any delays now will also have an impact, if not a larger impact, on the safrinha corn crop. Timely planting is important.
For South America's second crop corn, the planting window is critical as it has the potential to expose the crop to the dry season which begins in late April or early May. To hit this optimal window, Mato Grosso strives to get 80% of the soybean crop planted by Nov. 1. This year, that goal was accomplished in the nick of time, which leaves little weather risk in the market — at least for now.
Weather forecasts look favorable across Brazil in the coming weeks. Rains are expected to be beneficial for early crop development. Some areas are even expected to build soil moisture reserves despite the record drought just a couple of months ago. So, is the "South American weather story" over for 2024-25? I'm not completely convinced with La Niña developing. I'm not a meteorologist but I have been involved in farm production long enough to know that weather forecasts are never guaranteed. For central Brazil, La Niña patterns tend to provide better moisture potential while southern Brazil and Argentina trend hot and dry. However, that tendency, again, isn't guaranteed.
Weather patterns shift. Not only could these La Niña tendencies shift regions but La Niña is also known to shorten the length of the wet season by upwards of a month. That's significant. Again, not guaranteed but the South American weather forecast will certainly keep the trade's attention until the soybean combines and corn planters roll in a couple months. If South America's weather is perfect from here on out, global soybean stocks will remain burdensome. However, weather forecasts are only part of the story.
The market is well aware that South America, particularly Brazil, has experienced strong soybean export demand since the 2023-24 crop hit the global market. While not initially beneficial to the U.S. soybean market, it has potential to benefit U.S. export business in the near term. The case in point being firming old crop basis bids in Brazil. Despite a wide basis just a few weeks ago, bids have significantly improved. What does this mean? The supplies aren't there. Given production issues in the country this past year and strong export business over the past several months, the country's supplies are likely running low ahead of their 2024-25 harvest. In my opinion, CONAB was likely correct with their lower production estimates compared to the USDA.
For the U.S. producers, this has the potential to provide marketing opportunities during the peak U.S. export season. With the U.S. harvest season wrapping up, U.S. soybean export sales should be picking up pace. It has been notably slow so far, but it could be starting to pick up shortly — especially if Brazil really doesn't have the supplies to meet global needs ahead of their next harvest. That leaves the U.S. soybean market in prime position to benefit. Unfortunately, the window of opportunity could be short given that Brazil's new crop soybean harvest is only a couple of months away. Be ready to seize opportunities as they come.
With the U.S. election taking place this week, there is plenty of speculation that this opportunity may not arise. Will global demand mitigate any potential trade risks by waiting or buying elsewhere? Even if they have to pay a premium? Maybe, but they may not have a choice if South America has a weather issue in the months ahead, regardless of trade war and tariff fears . Clearly, it will take time for the global market to know these answers. Unfortunately, markets don't like uncertainty which will keep market volatility alive and well.
The fresh data hitting the market this week with the U.S. election, FOMC meeting and the monthly USDA reports certainly sparked knee jerk reactions across the broad market. Grain futures included. Unfortunately, this could be the norm for a while. Just remember, the headline news stories aren't the only items impacting price discovery. Watch out for Black Swan events as they may not be the headlines you would suspect — like this past week's big three items. It could still be the weather. With that, marketing strategies remain key for hedgers. Keep your risk on paper, not in the bin.
