The commodity train that the commodities market has been riding for weeks has hit the buffers this week. The start of the soybean harvest in South America, among other things, is causing the American market to reconsider its position. We also notice this downward trend in prices in Europe.
On the CBoT, the price of soybeans already reached its highest point this month in mid-January. The highest price in 7 years. Then he slowly slid down. The reductions for the other products only became apparent this week. At the CME Group, stability was again visible for corn and soy on Thursday, January 21, although it remains to be seen whether this can hold.
Conclusions in this analysis:
Late South American harvest
Improved weather conditions in South America and the start of the harvest there are now putting the market in a new perspective. Initially for soy, but also grain corn. Many of the American price increases are supported by good export figures. When the harvest in South America reaches the ports and is exported, the US will lose its dominant export position.
Today (January 22) new export figures from the USDA will be released that will provide direction to the market. There is a shortage on the domestic market in the US. If this remains the case, it could give the prices a new impetus.
Compared to 2019, US soy exports to China increased by almost 53% last year, to 25,89 million tons. In 2019 this was 16,94 million tons. The price increase this week was also due to higher export figures published by the USDA. Yet the market believes that China has not imported enough product to meet the ambitions of the trade agreement. It is clear that the US is once again dominant in Chinese trade. Brazil's exports to the country in December were at their lowest level in 3 years. Exports were also significantly lower in January.
Corn export uncertainty
After news broke that the Argentine government is considering restricting corn exports again, farmers in the country have started to sell more of their 2020-21 crop in advance. The country is the third largest corn exporter worldwide. While the Brazilian soy harvest is starting cautiously, soy is being sown in Argentina. Rain and improved growing conditions provide a better perspective for the crop.
In Brazil, soybeans are sown from September. Last year, sowing was delayed due to very dry conditions. As a result, the harvest is expected later. The first Brazilian soy loads are expected on the export market from the beginning of February. By mid-January, 0,8% of the area had been harvested, compared to almost 2% last year.
At the moment, Brazilian farmers mainly sell their soy on the domestic market, because this is more profitable than exporting. The price is expected to increase again in the second half of January because the new harvest is delayed and demand remains good. Market agency AgRural predicts the largest Brazilian soy harvest ever, of 131,7 million tons. Last season that was 123,5 million tons.
Old and new harvest
On the Matif in Paris, the price of wheat recorded a stable level on Monday and Tuesday, before falling by €4 per tonne. On Friday, January 22, the price of the March contract opened €0,25 lower. The price difference with the new harvest (December contract) is now more than €40 because tightness is expected in the current market. In the coming months, the current price level must be reduced, that of the new harvest must be increased, or a combination of both.
Corn gets sucked into the movements of wheat. The price stabilized at €21 on Thursday, January 213,75. The price difference between now and December is €25 per tonne. The European market continues to be strengthened by the Russian export tax. New rumors are now circulating that an increase is imminent, because domestic prices have not decreased sufficiently after the decision was announced. This could give wheat prices a new swing, which should also be followed by corn.
Another concern is warmer weather in the Black Sea region, which could melt the snow cover. If it unexpectedly gets cold in February, this is a major risk.
Guessing the area
In the US, market analysts are mainly busy making predictions for the coming acreage of soy and corn. Now that both commodities are trading very high, it is difficult to say which crop growers prefer. Current estimates give soy a slight advantage over corn. The appointment of Democratic President Joe Biden also affects market sentiment. Economic improvement is expected from Asia, which is positive for exports.
The Americans are positive about the recovery of the Chinese pig herd, which is driving increased exports. According to Chinese figures, the country's pig population was at 90% of pre-ASF levels on December 1. Since August 2018, about half of the country's population has disappeared due to ASF. A new outbreak that became known on January 21 causes some uncertainty in the positive predictions, which remain valid for the time being.