(By Giovanni Lorenzon, Investing News) The United States Department of Agriculture (USDA) has a few more days to accept the losses that Brazil will report in soybeans due to the catastrophic flood that takes over Rio Grande do Sul or consider its own lower estimates in the global supply and demand report (WASDE) coming out on the 10th.
The severe drought of the second half of the year in Central Brazil was practically ignored.
What was demonstrated last week, when the floods began to increase in volume from the 1st, is that this time participants in the futures market at the CBOT, in Chicago, can begin to become more independent of the so-called “gold standard” of estimates – the USDA.
The crisis that submerged the Rio Grande do Sul fields – and devastated the population and the State’s infrastructure – was significantly felt in the exploding prices of soybeans in all maturities, every day since the holiday. More evident on Thursday, also counting on some rain for US planting.
Only the May contract, the most liquid, went from US$ 11.45/bushel on the 30th and closed on Friday at US$ 12.01, at a time when the market began to worry that the losses for soybeans in Rio Grande do Sul could become unbalanced Argentina’s offer.
Between the end of September and the beginning of November 2023, the American agency was wrong, the market was wrong, when it was the turn of severe drought and heat, in the Central-West and Southeast, the first barely took a few points off the forecasts and the second little and nothing was priced.
Anyway, from 162/164 million Brazilian tons at the beginning of the 23/24 season, the last WASDE, in April, reached 155 million/t, against several Brazilian estimates even lower than those of Conab, whose last result was 146 .5 million/t.
The funds that speculate and the trading companies that hedge on the Chicago Stock Exchange whether or not they believed – piously – in the USDA is another story, but they saw Argentina’s strong return in the current harvest as canceling out any Brazilian ‘break’. Javier Milei’s country went from a crash that resulted in 22 million tons to being able to reach its normal level – 48 to 50 million tons now.
In the worst case scenario, the Argentines will deliver at least 20 million tons more, after a good harvest, most of the time under rain.
But here is the tragedy in Rio Grande do Sul that has everything to change the scenario, which, it must be said, came from even greater pressure because 24/25 planting in the USA is accelerated and the climate does not show signs of stress in the coming weeks.
The State, second in soybeans, had a forecast of 22 million/t, a full and encouraging harvest, after previous seasons suffering from drought. Now, the current week opens with the prospect that the situation could reach 20% smaller – or more, depending on more accurate accounting or if the storms continue (as they seem to return).
There is a lot of waterlogged, rotting (burned) soybeans in fields that still have around 40% left to be harvested, not to mention damaged machinery and infrastructure on farms and cooperatives, making harvesting and post-harvesting difficult. In addition to urban and road delays, transport and flow are delayed.
Anything that amounts to around 4 to 5 million less is already more than half Paraguay.
In a situation where there may be a little less soybeans in Argentina, which also came with some reductions in local cereal exchanges – although suffering less from humidity than corn -, the market has started to swing again and could be displaced from the USDA if this comes in the next still conservative report.
And with a lot of ground ahead for American soybeans to develop, until the start of the harvest, at the end of August, prices could gain traction – except for specific adjustments, like this Monday (6)
For the people of Rio Grande do Sul, however, there is not much consolation left: there is no point in having a better price if there is no product.
Tags: Tragedy independence USDA gold standard
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