Hot, dry conditions plagued major crop growing regions of Argentina and Brazil over the past two months, igniting a rally in Chicago’s grain markets and posing the threat of further shrinkage in global corn supplies after the U.S. harvest fell short of expectations.
As dry weather persisted through the holidays, analysts including Dan Basse downsized expectations for South America’s crops. Basse, who’s president of AgResource Co. in Chicago, recently cut his projection for Argentina’s corn harvest by 23 percent, to 23 million metric tons. His figure is also 21 percent below the U.S. Department of Agriculture’s forecast.
South American weather "is increasingly concerning to the market,” Basse said in a Jan. 3 e-mail.
Those concerns intensified in recent weeks, contributing to an upswing in Chicago futures prices that sent the corn market up 14 percent from nine-month lows reached Dec. 15. On Jan. 3, the first trading day of 2012, corn futures for March delivery rose 12 cents to $6.58 ½ a bushel, an eight-week high.
Argentina, the world’s No. 2 corn exporter after the U.S., was expected to harvest a record crop this year, according to the USDA. Strong South American harvests this year are crucial to replenishing global grain stockpiles after unfavorable weather last year hampered crops in the U.S., the world’s top corn and soybean producer.
But continued weather problems in South America probably will push grain prices even higher as global buyers to seek more supplies from the U.S., analysts say. That would further squeeze livestock and dairy producers already pinched by soaring feed costs after corn touched an all-time high near $8 a bushel last year.
Soybean futures have also rallied in part because of South America’s weather. On Jan. 3, March soybean futures surged 19 ¾ cents to $12.27 ½ a bushel, up 11 percent from a mid-December low.
According to meteorologist Joel Widenor of Commodity Weather Group, LLC, there are “serious moisture deficits” across about three-quarters of Argentina’s corn and soybean belt.
If current weather pattern persists over the next two weeks, March corn futures could reach $6.80 and March soybeans may hit $12.90, Archer Financial Services analyst Scott Harms said, though further gains would hinge on USDA reports later this month and actual evidence of significant yield losses in South America.
“I don’t think that there is any question that there is a growing concern regarding the crops in S. America,” Harms said in an e-mail. “There is little doubt that the current growing conditions in southern Brazil and especially Argentina are not conducive for crop development as we enter the crops’ reproductive period.”