NOTIGROBO – December 2018 / January 2019 Edition
By Carlos Sánchez Negrete (Cía. Gral. Del Término). EXCLUSIVE FOR NOTIGROBO.
The first and most important of all is the weather. The climatic behavior from here to March in South America will be crucial to define yields; therefore its influence will be on the potential volume of harvest, which in turn will impact on prices. Until December analysts' projections pointed to a production in Brazil of 120 MM tons that, added to the rest of the South American countries, totaled a record supply close to 190 MM tons.
To this huge projected supply, we had to add the reality of a record production of soybeans in the United States that would leave at the end of its campaign 26 million final stocks, the highest in 30 years. However, the shortage of rainfall in Brazil during December, especially in the states of Paraná, Mato Grosso, Mato Grosso do Sul and Goias, supposes a decrease in yields that analysts estimate between 3 and 8 MM tonnes. Therefore, Brazil would already have a ceiling of 115 MM and the rain forecasts for January are not among the best.
The rest of South America, except for some problems of excess water and some replanting, is very good. Up to this point, the climate impact resulted in a rebound in prices of the July market position in Chicago, in the first week of January, of +15 usd / ton, mainly driven by the repurchase of speculative funds that had positions sold.
The second factor to take into account will be the evolution of the negotiations between China and the US and the announcements of purchase of US soy by China. Until now it is estimated that China has bought around 5 million tons since the presidents of both countries sat down to negotiate in Buenos Aires. The market expected that this volume would be at least 10 MM, so it is waiting for new purchases that would help strengthen the market.
Until now, the behavior of the market during the conflict between China and the US has been of strong rises before announcements of improvement of relations or of future negotiations, but that were diluted in the absence of substantive solutions that give a clearer and more stable horizon. The market is again giving us a bounce in prices, due to the aforementioned factors.
For this rebound to translate into a more definite upward trend, the climate problem should be deepened to reduce the future supply of soybeans and at the same time we should see China buying soy more aggressively from the United States.
Automatic translation from spanish.