Analysis Grains
Extreme drought sets soybeans in Brazil behind
The wheat harvest is largely behind us. Little reason for movement in the market, you might think. That turns out differently. Wheat has been on the rise for days in both Chicago and Paris. Corn and especially soybeans are captivated by the weather forecasts. In the US, these crops could become prematurely ripe due to lack of moisture. It is truly exciting in Brazil, which is experiencing the driest start to the new growing season in over forty years.
The September contract for wheat on the Matif closed €2.75 higher at €206.75 per ton yesterday. The December contract increased by €1.25 to €220.50 per ton. Wheat on the CBoT closed 2.4% higher at $5.65¼ per bushel. Corn rose by 1% in the last trading session to $3.90½ per bushel. Soybeans showed a similar movement and closed 0.9% higher at $10.06 per bushel.
The winter wheat harvest in the northern hemisphere is long over. With the harvesting of spring wheat in North America and Russia, significant progress has been made. The supply of wheat that farmers have no storage for is decreasing. Combined with a disappointing wheat harvest in the EU, the sentiment in the wheat market has shifted. On the Matif, the December wheat contract closed higher for the seventh consecutive day, and on the CBoT, it is the sixth consecutive day. Wheat is thus the driving force behind the revival in the grain market according to various analysts.
However, the upward movement in corn and soybeans is certainly not solely due to developments in wheat. It is dry in the US, and according to the weather forecasts, there is no rain expected in the Midwest in the next seven days. Corn and soybeans are looking good, but could ripen faster due to lack of moisture. Premature ripening will reduce the yield.
Driest start since 1981
The drought in the Midwest is nothing compared to what is happening in Brazil. The northern half of the country is exceptionally dry. The Brazilian meteorological institute calls it 'the worst drought since 1981'. The corn harvest in Brazil is almost complete. Farmers are preparing to sow soybeans. Mid-September is the ideal time for this. Due to the lack of moisture in the soil, farmers may be forced to sow later.
AgRural expects the soybean area to reach 46.4 million hectares next season. This is 0.9% more than last year, but the smallest increase in acreage in eighteen years. The potential harvest is estimated at 168 million tons. The market bureau Patria's expectation is reasonably in line with AgRural. Patria predicts 46.45 million hectares of soybeans and a potential harvest of 166.72 million tons. It should be noted that these yield forecasts are based on an average course of the growing season. Due to the dry start, soybeans are already at a disadvantage. Several analysts expect the forecasts to be revised downwards several times in the coming period.
