Grain Markets:All Eyes on South American Weather

January 19, 2009

northern-il-winter-fieldThe United States and the world on Tuesday will be focused on the inauguration of President Barack Obama, with his messages of change and hope amid war, recession and financial crisis — which sounds like music to the ears of battered traders everywhere.
    But at least one corner of world markets — the Chicago grain trade — will be keeping just as close an eye on South American weather, which as usual at this time of year will set the tone for the week and for the coming year’s world grain supplies.
    CBOT markets will open a day later than usual on Monday night at 1800 Chicago time (2400 GMT) after the three-day U.S. holiday weekend including Martin Luther King Day on Jan 19.  
    “Monday night we’re definitely going to watch the South American weather. All eyes will be on that,”  said grain market analyst Don Roose at U.S. Commodities in West Des Moines, Iowa.      The world’s grain industry is counting on Argentina and Brazil to pick up the slack this year from a small supply of U.S. soybeans. U.S. soy stocks are projected to reach a five-year low of 225 million bushels by August 2009.  
    The two South American giants combined to finally pass the United States as the number one origin for soybean production a couple of years ago. Both are just now in the middle of their southern hemisphere growing season when heat and moisture are key for final yields.
     Last week, worries about stress on the Argentine soy crop helped CBOT soybeans and grains recover some of the ground lost after the U.S. Agriculture Department surprised the markets on Monday reporting larger-than-expected domestic Dec. 1 U.S. grain stocks. USDA also raised its forecasts for the amount of grain to be left at the end of this current marketing season. CBOT soybeans, corn and wheat all ended lower for the week, with soy seeing the smallest decline and wheat the largest.  
    Questions will continue to hang over 2009 demand for US grain exports and for biofuels, given sagging global economies.     But this week the seasonal close watch on southern hemisphere supplies should come back to the fore, with Australia and South Africa weather also watched. The main focus as always, however, will be on South America.
     Argentina in particular is suffering from drought, with the country’s output already seen being cut due to a lack of rain over the past month. While the now-pollinating corn crop is more vulnerable to the heat and dryness, the weather stress is giving soybeans an even bigger punch. Temperatures are expected daily in the range of 90 to 100 degrees Fahrenheit with no rain in sight. That spells more problems for the world’s number 2 corn exporter and number 3 soybean grower. Markets will factor it in daily, dependent on the latest weather news.
    Over the weekend central Argentina, the main crop region, only received light, scattered rains of 0.10 to 0.75 inch.
     The other big factor feeding into CBOT price movement will be the ongoing tug of war between corn and soybeans for acreage — as the strongest will entice more U.S. plantings of that commodity.  
    “When the soy/corn ratio gets to a certain point it’s like a rubber band — snapping back in the other direction,” one CBOT floor trader said after Friday’s close as corn futures gained on soybeans for the first time all week.  
    The  key spread traders watch in this tug of war are the main harvest months. The new-crop November soy/December corn price ratio closed on Friday at 2.23, after climbing to 2.34 on Thursday.  
    “The trade is really, really uncertain which way it’s going to go with the acres,” Roose said. “The farmer isn’t so sure either. The banker might have something to do with that.” 
     As always these days, the final wild card for grain markets will be from outside — namely, Wall Street. If Obama can inject more confidence into the markets, that can only be positive. The financial markets remain full of fear, still perceiving a creaky banking system and an economy of rising unemployment, bankruptcies and knock-on effects overseas.

PHOTO: Winter field in northern Illinois taken by Chris Stebbins. U.S. farmers now making spring planting decisions, with CBOT price action key to their final choice.


This bullish attitude was not the tone in the pits; at least only the first 5 minutes.

The action you pretend to explain in this post was seen on friday 16th with opening gaps across the board. On tuesday, the earnings season was heavier for all markets.

It would be nice if you follow the option pits and not only fundamental stuff.


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