For the second consecutive month, soybean prices ended lower, albeit slightly. Nearby prices were about 1% lower and new crop prices were 2-3% lower. The two factors that we felt would be most important, South American weather and Brazilian logistics, were both decidedly bearish. The one item we underestimated, the Argentine economy, was decidedly bullish. As Argentina stumbled from one bad policy to another, their farmers clutched their soybeans like they were the last true store of value. Indeed they may be.
As a result, the U.S. was called upon to make up for a significant shortfall in the world soybean meal market created by the absence of Argentina. This took the form of a record U.S. crush, record weekly meal exports and an unexpectedly large number of soybeans being shipped to Europe. That flurry of activity put the U.S. on an unsustainable usage pace and had most analysts reducing their projected carryouts. Certainly the need for U.S. imports of soybeans and meal during March-July has been increased.
Offsetting all of that was nearly ideal South American weather and excellent yields in the first 5% of fields harvested. Argentina did experience some dryness mid-month, but that moisture deficit had been completely eliminated by month’s end. Along with that, the Brazilian logistical situation bears no resemblance to last year’s nightmare. Soybean vessels have been dispersed to a large number of ports and few corn vessels are around to reduce productivity and to slow soybean loading.
As we look forward to February we will continue to monitor the very fluid financial situation in Argentina and the encouraging logistical situation in Brazil. In addition, northern Brazil looks to be very dry for the first half of February. While that is ideal for harvest and for vessel loading, it could mean that the late-planted soybeans will not be as exceptional as the early soybeans were.
For the first time in five months corn prices ended the month higher than the previous month. The demand response to these lower prices has been impressive. With civil unrest in Ukraine and a soybean focus in Brazil, the U.S. has done an overwhelming majority of world corn business over the past month. In addition, the two major sources of domestic demand—feed and ethanol—are both experiencing excellent profitability. As a result, the prices have not only moved higher, but the nearby spreads have also tightened up with March gaining a nickel on July. Unless we can inspire a large round of farmer selling, this pattern should continue.
Wheat remains the weakest of our three markets with all U.S. exchanges making a steady stream of new contract lows. Canada has clearly become the North American price setter for spring wheat. With their western export market booked well beyond capacity, the U.S. has become by far their best outlet. World soft wheat remains under pressure despite good buying by Egypt. India has proven itself to be a reliable supplier and several million additional tons from them has taken the world soft wheat situation from balanced to bearish. U.S. hard wheat carries a glimmer of hope from Brazilian business and dryness in the southern plains, but even that has not been enough to keep Kansas City from a series of new contract lows.
February will be an important month for a number of reasons. Not only will we get the USDA’s first estimate of spring plantings in the U.S., but we will also determine the base prices for the government revenue insurance programs for corn, soybeans and spring wheat. We will also have a clear idea of the crop sizes across South America and good read on what Brazil is planting for a second crop. We remain bearish, primarily in the soy complex, but will look for Argentine selling or U.S. import deals before we press our advantage.