Drought in South America is causing the market for grain maize and soybeans to recover. The soy market in particular feels strong. How does this affect the market for feed raw materials and what price levels can we expect in the coming months?
The weather in South America continues to occupy headlines at the beginning of this week. A top harvest of soya and grain maize was expected in Argentina and Brazil. But due to drought the beauty is gone. It is persistently dry in Argentina, while parts of Brazil experienced excessive precipitation. The rain that does fall will probably come too late.
Drought controls market
While the European corn market has been taking it easy – switching to the March contract in Paris – the CBoT has felt stronger. The US Department of Agriculture, USDA, will release its Wasde report for January this week. This should provide direction in terms of harvest volumes, although the question is to what extent the current situation has been taken into account. The figures should also say more about the export opportunities for America. China has taken it very slowly for the time being and purchased little corn and soy in December. The market in their own country is good, which means that American sellers are hoping for a new buying wave early this year. Thanks to public holidays, there will be a lot of consumption in China at the start of 2022.
Drought is also being discussed in the US. After a dry growing season, the winter is also dry with strong winds and little precipitation (snow). Crucial fluid reserves are thus insufficiently replenished. In addition, sky-high fertilizer prices are causing American arable farmers a lot of headaches. Corn in particular is hungry for nitrogen and that is very expensive. The price ratio between corn and soy has never been monitored as closely as it is right now.
Soy has power
Soybeans are currently the top performer when we look at the three major commodities. The feed raw material therefore has the power to pull the other raw materials up in price. Certainly if the Brazilian soy harvest actually declines by 13 to 14 million tons - as analysts now think - then the impact on the world market will be significant. The Chinese in particular had hoped for South America as a source of a lot of soy. They may have to turn to the Americans (again) if Brazil cannot deliver.
The market is holding its breath at the beginning of this week. The numbers of the 12e are of great importance. After a sharp increase for soy on Friday, with the highest price in seven months on the CBoT, we now have to wait for new facts.
Wheat is taking it easy
In the meantime, wheat pricing is slowing down. The yield figures for Australia may be increased again. New precipitation causes a reduction in quality, which actually makes more feed wheat available and less baking wheat. This is difficult for the really high quality wheat, which was already very scarce. Countries are currently purchasing little wheat. Tenders are issued, but there is hardly any buying involved. The price level is rising on the physical market. Especially for wheat with 12,5% protein.
Fueled by soy – and to a lesser extent by corn – feed prices are estimated to rise further in the coming weeks. Much depends on the South American figures. Let's look at the compound feed price indicator for a-brok en meat pig chunk then an upward trend can be seen. Especially the latter.