Summer Forecast and Issues in South America - Wednesday, 27 April 2016

The grain markets have producers confused and hesitant to make any marketing decisions until they know what’s going on.  Goldman Sachs cautions that the recent rally is not based on the fundamentals.  In a recent write-up Goldman Sachs was quoted “While this recent rally has the potential to run further to the upside…we believe that it is not yet driven by a sustainable shift in fundamentals.”  Kevin Van Trump says “technically the chart guru’s as well as myself would still like to see the DEC16 new-crop contract close back above its 200-Day Moving Average, an area just north of $3.93 per bushel.  Unfortunately that has only happened a handful of times in the past several months.”

Talk continues that Brazil is preparing to import corn from the U.S. The extremely dry conditions have reduced yield expectations and the country has already been buying corn from Argentina and Paraguay and it’s believed that imports from the U.S. are likely.  Last week we heard that an undisclosed buyer had booked 136,000 tonne of U.S. corn, the “mystery corn cargo” has the grain markets speculating that drought-hit Brazil has purchased its first major cargo of U.S. corn since 1995.  If this is true the world’s 3rd largest corn producer and 2nd biggest corn exporter, is now reaching beyond its “traditional” suppliers – Argentina and Paraguay.  With no end in sight to their current supply crisis, Brazil appears to be scrambling to secure feedstock supplies.   

Argentina has been dealing with too much rainfall and now a much cooler weather pattern is setting up to move across the country delaying the drying out process.  The longer range forecasts don’t show any relief to the rain soaked area either, the 2 week extended forecast shows more precipitation followed by another cool down. 

In addition to weather concerns facing Brazil, “a political meltdown in Brazil is still extremely hot and doesn’t look to cool down anytime soon”.  The current president, Dilma Rousseff, is facing impeachment.  The decision is now in the hands of the countries Senate, the impeachment is expected to pass late next month.  If this occurs extreme market uncertainty and social unrest is expected as millions of Rousseff’s supporters are likely to take to the streets over a “perceived coup.” This all points to the likelihood that Brazil may be facing a political and economic crisis that is likely to get much worse before it gets better.

Monday the USDA estimated that 30% of our nation’s corn crop is planted and 3% of the soybeans.  Overall U.S. producers are off to a great start with spring planting progress.  A few of the notables:

  • Iowa 40% planted vs 12% a year ago, the average is 9%.
  • Illinois 42% planted vs 26% a year ago, the average is 25%.
  • Minnesota 45% planted vs 31% a year ago, the average 11%.
  • Missouri 80% planted vs 17% a year ago, the average 31%. They also report 24% emergence.
  • Nebraska is 16% planted vs 13% a year ago even with the rain delays this season, the average is 11%.

 

 

The long range forecasts that take us through the summer of 2016 are below.  The first map show the forecast according to The Weather Company.  They report that the general weather pattern that has resulted in several surges of cold air across the U.S. from late March through most of April is weakening which indicates we will be seeing warmer temperatures ahead with the second half of May being exceptionally warm.

The recent trend seen over the past 6 summers is expected to continue.  In fact the long-range forecast that takes us from June through August calls for a “brutal summer” with temperatures well above average expected for a majority of the U.S.  Most computer models continue to look for a transition from El Niño to La Niña sometime this summer.  NOAA reported recently that the El Niño is losing strength but is likely to stick around a couple more months and along with that have also issued a La Niña watch for this fall.  Traders are also keeping a close eye on this transition of weather patterns.  How it will effect crops in the U.S. is being debated as well as what it may mean for crops in South America next year.

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