Even though just updated, trade continues to receive private projections on South American corn and soybean production. Some firms continue to increase their production estimates, mainly on corn. This is from the favorable weather the crop has seen in recent weeks compared to what conditions were when the crop was initially seeded. Many regions of both Argentina and Brazil have received plenty of precipitation in recent weeks, and crop potential is increasing as a result.

We are also seeing some increases to soybean production in South America, but these are not as significant. This is from the fact much of Brazil’s soybean crop was too far along in maturity to benefit from rains. The Argentine crop may benefit from rains, but not enough to counter earlier losses.

This spread in soybean production in Brazil was noted in two reports that were released this past week. The USDA projected a Brazilian soybean crop of 127 million metric tons (mmt). This was closely followed by the official group CONAB, who predicted a Brazilian soybean crop of just 122.8 mmt. The difference between these two estimates falls on acreage and how the USDA is using a higher harvested figure in balance sheets. Sources in Brazil are starting to lean more toward the USDA figure when predicting total soybean output.

Even with questionable production, Brazilian soybean exports for the month of February were up from last year. Soybean exports from Brazil were 3.5 mmt larger than last year as Brazilian exporters tried to capture as much of the current market values as possible. This elevated selling also has some analysts thinking Brazilian production may be larger than currently predicted. The fact that Brazil’s soybean harvest is well ahead of last year’s pace is more of a likely factor in the elevated exports.

The real question in South America is what may happen next year. If inputs are as hard to secure as trade expects, South American farmers may not expand plantings next year. Even if farmers in South America do seed as many acres as this year, the likelihood of lower fertilizer and crop protection usage may reduce yields. This could easily be countered by a return to normal growing conditions following two years of drought.

Trade is starting to show more interest in U.S. wheat supply and demand outlooks. The current carryout estimate on wheat is 648 million bu (mbu). While this is still a 33 percent stocks-to-use volume, it is nearly 200 mbu less carryout than a year ago. Given the developing issues in the Black Sea and the demand it may bring the United States, there are thoughts this total will shrink next year. This is especially the case with questionable production, mainly the ongoing drought in the Plains. Thoughts some spring wheat acres may shift to soybeans are adding strength to theories that stocks will tighten.

Even with elevated futures values, it is possible we will see them climb higher this growing season. This is because the market currently holds very little weather premium in a scenario where no production can be lost on any crop. Traders and buyers may wait until we get closer to the planting season before adding this premium though, and even then, it may be less than hoped for. This comes from recent years where weather stressed the crops, but yields were still better than expected.

One commodity the United States is highly competitive on is soy oil. While palm oil is still cheaper, the spread between that product and soy oil has narrowed. Soy oil is currently $30 per ton more than palm oil but the difference is normally $100 per ton. Soy oil is easier to secure right now which makes the narrowing spread even more favorable for the United States. This is evident in the cumulative export sales of soy oil, which are currently 81 percent of the yearly forecast with seven months of the marketing year left.

China continues to auction wheat out of its government reserves and is having little issue in finding buyers. Chinese sources report that 97 percent of the wheat offered at its latest auction were sold. The average price on this wheat was $11.61 per bushel, 46 cents more than the previous sale. Buyers are showing considerable interest in this wheat, which is milling quality, as it generates more lower quality wheat that can be used for feed. By using this, Chinese feeders can avoid corn imports and scale back on meal production as well.

Chinese officials have announced the country will soon be auctioning off soybean reserves as well. The sluggish loadings out of Brazil and shipping delays are a primary reason for these auctions. China will also take this as an opportunity to rotate reserves and refill their storage facilities with new crop imports. China has not given a timeline on when this rotation may take place.

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