South American drought re-emerges

  01/25/12 - Dry weather in southern SAM has once again emerged, with Argentina and southern Brazil once again seeing a dry forecast in place for the coming 7 days, with little to no rain in the forecast for the driest areas of  SAM.  That is providing support to the market recently, with prices moving up into the gaps created when USDA's Jan report hit, with its bearish implications of more US and world ending stocks. 
   The last 2 weeks has been a different forecast than most of December and early Jan., with significant precip falling in both dry areas in Argentina and southern Brazil.  The recent precip and cooler temps should have slowed the decline in crop conditions in much of this dry area, while the northern portions of Brazil continued to have good precip and below normal temps. 
  The recent change in the forecast back to drier than normal comes at a critical time for the soybean crop, as we are in the equivalent of late July in US crop development, so rains for now would be extremely important to the soybean crop development.  We are getting towards the time of year when the rain will help the corn crop less, although this is still a critical time for corn, too.
 The recent change back to a dry forecast for the dry southern SAM belt means more support for the grain market, and thus firming of prices into late January.  The rally is pushing grain prices back into the gap left by the sharply lower trade on report day for the Jan USDA report, when corn fell to limit losses (40c) and another 5c losses on the synthetic trade.  Can we fill those gaps lower in this current rally???
 Everything depends on the weather now, but the recent shift back to dry weather forecasts in southern SAM is a healthy sign.  The only problem for the bulls is that the forecast is updated 2x/day, and changes back to a wetter pattern (like the past 2 weeks) could put the nail in the coffin for grain prices. 
  Unfortunately, the rest of the world is not in dire need of grain crops like recent years, and that whole scenario has already played out in the Jan. USDA report.  While much has been made of the SAM drought in southern growing areas, Pro Ag suspects that the damage might be overestimated due to the shortage of rains.  Typically, moisture deficits like we've recorded in southern SAM the past 6 weeks will be accompanied by excessive heat.  But this year cannot be classified in that category as temps have only averaged about 1-3 degrees above normal during this period in southern SAM, and actually have been cooler than normal in northern Brazil (where heat typically is a bigger problem).  The northern portions of SAM continue to have high yield potential, putting a damper on any significant rally due to SAM weather.
 So we are at a bit of a standstill right now, with prices rallying up into previous gap areas on recent adverse weather.  The only problem is they will start to encounter some tough resistance at these marks.  That represents a good opportunity again to make catch up sales of multiple years of sales for grains, with corn the most attractive hedging opportunity right now.  The recent recovery may be close to resistance points now, making this an excellent time to make catch up sales. 
  Perhaps waiting for another forecast of wetter conditions for the dry areas of SAM would be the ideal time to pull the trigger on this recent rally.  Timing is everything - which in marketing is as constant a theme as any! 
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