Perspective: Mid-Day Commentary for January 13

By: Arlan Suderman, Chief Commodities Economist

Thu, 13 Jan 2022, 17:54

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

January 13 - Broad weakness spread over many of the markets in today's trading action, from Wall Street to Chicago. The VIX continued to trade largely between 18 & 19, so the selling wasn't fear driven, but it existed nonetheless. Today is the final day of portfolio rebalancing, although I didn't get the feel that that was a significant factor in the scope of today's selling. The grain and oilseeds found some support from a weaker dollar, trading near 94.8, but that still wasn't enough of a factor to keep them in the green either. Yields on 10-year Treasuries traded near 1.72%. Crude oil prices were modestly lower, while momentum selling weighed heavily on the grain and oilseeds amid forecasts for increased rainfall in dry areas of South America next week. Live cattle futures found support from reports of some more cash movement at $136 per cwt on a live basis today.

It's been dry in Argentina. The left graphic below shows rainfall for Argentina's soybean belt over the past 30 days as a percent of normal. The graphic to the right shows that the past 30 days have been the driest of the past four plus decades for the region. In fact, 87% of Argentina's soybean belt received less than 50% of normal rainfall over the past 30 days, while 47% received less than one-fourth of normal rainfall. Meanwhile, the region has been plagued by record heat exceeding 100°F for extended periods of time to dry out soils while stressing crops. Crop ratings have plummeted over the past 30 days from their initial high levels as soils dry out.

Some relief is expected next week from a couple of systems expected to pass over the region, favoring northern and eastern portions of the belt, while southern and western areas risk missing out. Rain amounts in this drought-stricken area will likely disappoint. It's hard to break a drought. Nonetheless, the rains will provide some benefit. February will be a key month for Argentina's corn and soybean crops as a large portion of them move into the critical reproductive phase. Commodity Weather Group did analysis to determine what we can expect for February. Looking at the analog years with the current ENSO pattern and south Atlantic sea surface temperature anomalies, CWG found that two-thirds of the years continued to have a dry bias in February, while one-third had a wetter bias. CWG then looked at the long-range models, finding that three-fourths of them favor the dry scenario for Argentina in February, while one-fourth were wet. So, there is some chance that we see a wetter pattern in Argentina in February to restore production potential, but the odds are certainly against it. But here's the caveat. We cannot assume the scope of crop losses if the drier scenario plays out, as the odds suggest. There will be times of showers, even under that scenario. They'll just be limited in scope. But as we saw in the northwestern Midwest last summer, the timeliness and coverage of those showers can make all the difference. Nonetheless, the risks remain high for Argentina through much of February, with just 15% of Brazil's soybean crop still immature enough to benefit from next week's rains.

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