Commentary provided by Chad Burlet of Third Street AG Investments
By recent standards, January was a relatively quiet month for agricultural futures. Volatility trended lower for corn, wheat, and soybeans, and their monthly trading ranges were near the lowest of the past year. The top three global issues were the same as last month: 1) dryness in Argentina and the U.S. Plains; 2) Black Sea shipments; and 3) China’s emergence from its covid lockdowns.
On the weather front, things improved in Argentina and the U.S. Plains in the second half of January. Both regions received their best precipitation in months, but both need far more to finish their current crops. Unfortunately, forecasts are less encouraging than they were a week ago.
Fighting continues in Ukraine, but Black Sea shipments continue (mostly) uninterrupted. Russia is using the vessel inspection process to slow the number of vessels moving into Ukraine to load. That has held total Ukrainian exports about 30% below last year. Russia, meanwhile, is exporting at a near-record pace. This, combined with strong wheat shipments from Australia, Canada, and the EU, has helped keep a lid on world wheat prices. Unfortunately, because of a shortage of manpower, equipment, and inputs, Ukrainian new crop acres will be even lower than last year. Early production estimates are roughly half of their pre-war levels.
In Brazil, farmers have started what will be a record soybean harvest. However, rains have slowed their progress, and they’re running about two weeks behind normal. Any additional delays will create concerns about the planting of the safrinha corn crop. In addition, late planting of that crop pushes pollination and harvest into more difficult seasonal weather patterns.
South of Brazil, dry weather has punished both Argentine corn and soybeans. Recent rains have temporarily stabilized the situation, but, as we said above, much more is needed. In the January WASDE, the USDA lowered its estimate of Argentine corn production from 55 to 52 million metric tons (MMT) and soybeans from 49.5 to 45.5 MMT. Private estimates are as much as 12 MMT lower on soybeans and 17 MMT lower on corn. Argentina has already started importing Brazilian soybeans to crush and is expected to import more than 5 MMT from Paraguay and Brazil.
In China, the government lifted most of its covid restrictions just prior to the Lunar New Year. Early reports of a spike in infections and deaths were very concerning, but the worst seems to have passed. Chinese soybean crushers have ramped back up, and their unofficial total crush of 9.2 MMT for December would be a record for any month. Their push for food independence continues as they try to increase soybean hectares and reduce the use of soybean meal in feed rations.
As we turn the calendar to February, attention will be focused not only on South American crops but also on northern hemisphere winter crops, which will begin to emerge from dormancy near the end of the month. February is also when the USDA sets new crop insurance prices for corn, soybeans, spring wheat, and cotton. Those base prices often play an important role in planting decisions and acreage allocations.