MarketsFarm — The U.S. Department of Agriculture’s world agricultural supply and demand estimates (WASDE) report last week is taking a back seat to drought concerns in South America, according to a Chicago grains analyst.
Terry Reilly from Futures International said Friday’s WASDE report had very little effect on the Chicago Board of Trade (CBOT), which was little surprise considering a lack of major changes to the report.
“The USDA didn’t really address the South America situation with the growing drought conditions in Brazil and also Argentina,” he said. “We’re back to trading weather right now.”
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While Argentina received rains last week, moisture levels are still lower-than-normal and the weather forecast appears to be dry for the next six to 10 days.
Parts of Brazil are also experiencing dryness, but it’s yet to be seen if it will affect the country’s soybean crop, which many are anticipating to be a record.
Reilly believes the dry conditions in South America will remain supportive for soybean prices, but soymeal could also affect them as well.
“There are some traders who think Argentina won’t fulfill meal shipments next year. So, it’s going to be very important to watch not only the trade estimates for Argentina, but what they may do in potentially restricting exports of soybeans. We’ll have to watch the producers selling.”
Reilly added that Argentine soy producers have only sold 2.5 million tonnes since their government last month implemented a new exchange rate for soybean exports at 230 Argentine pesos (C$1.81) per U.S. dollar.
Meanwhile, despite Russia continuing its missile attacks on Ukraine, Black Sea grain shipments have been steady at the moment. Reilly predicts corn prices will take a step back if this continues.
“We’ll have to keep an eye on (Ukraine) but… I think it’s more of a long-term issue. Ukraine’s only been able to collect a portion of their corn crop. A lot is still left in the fields and the (2023) forecast for corn is expected to be low due to the war,” he said.
The U.S. Federal Reserve on Wednesday announced its latest key interest rate hike, raising it by 50 basis points as many observers expected.
Reilly predicts quiet times for the CBOT until the New Year.
“I think we’ll probably trade somewhat sideways in the soy complex and probably grind a little bit lower in the grains,” he said.
— Adam Peleshaty reports for MarketsFarm from Stonewall, Man.
