Market analysis: South American weather
01/09/17 — This is the time of year where South American (SAM) weather is critically important for impacting the potential yields of SAM crops. So far, Brazil weather has been mostly cooler than normal, with mostly normal precip so that is a recipe for an above average crop in that country. Argentina is a different story, as it has been warm and dry in that country for the past few months, with intermittent periods of rainy weather that is mostly keeping the yield potential of the crop at a decent level. If this weather pattern continues, it’s likely to result in an above average crop for Brazil, and below average for Argentina in 2018.
That doesn’t leave much for the market to do, though, until spring planting begins in the northern hemisphere. While there is still a lot of growing season left in SAM, if it doesn’t change it is going to leave us with more than adequate supplies of nearly everything, just as we began the SAM growing season with. So SAM didn’t bail us out of our current price funk, and in fact currently it appears that it will continue at relatively low price levels until the northern hemisphere begins their growing season.
While that isn’t all good news, it isn’t all bad either as a below average crop in Argentina does leave us with some hope this coming year. With low prices everywhere in the world for almost all commodities, it means there is less incentive to plant all the acres, and farm it less intensively as we don’t have $8 corn anymore! So that combination of less incentive for farmers to bust their butts to produce a bumper crop might reduce potential yields and acres some. If adverse weather does hit, that could have more of an impact as well.
Exports of U.S. crops seems to have slowed, though, and that could still have a dampening affect on winter prices as well. We just don’t seem to have the same zip in our export markets as South America is still trying to get rid of their huge crop from last year. That presents some good competition to the U.S. for soybean and corn exports, and the rest of the world (especially former Soviet Union countries like Russia and Ukraine) seems to have plenty of wheat to sell.
On a more positive note for agriculture, President Trump addressed the 99th Annual National Farm Bureau convention yesterday in Nashville, Tennessee, and farmers there appreciated the fact that Trump spoke at their convention and thanked farmers for their role in the American economy and history. Just the fact that Trump attended and spoke at the convention is good news for agriculture, as it means the president at least is aware of the agricultural issues — especially those raised by the Congressional delegations of ag states in the Midwest.
Highlights of Pres. Trump’s speech (posted on his Twitter account) was his appreciation of the U.S. farmer’s role in the U.S. economy and the country, as this country was founded by farmers and built by farmers over 200 years ago. Farmers there also appreciated the tax relief bill just passed at Christmas, and also the rolling back of regulations, especially the waters of the U.S. (WOTUS) rule, which made no sense at all. With Trump, regulations of all kinds have been rolled back, and perhaps is even more important to the country than tax relief (they were completely out of hand). No wonder the stock market has soared 30 percent in the past year, and is likely to continue to rally. I couldn’t help but think of the big issue in North Dakota last fall, the Dakota Access Pipeline issue. Basically, the developers spent $3.58 billion laying the pipeline with permits started in 2014, only to find at the end of construction that protesters (mostly from California) had joined an Indian Reservation in protesting the pipeline. For months the state begged the Obama administration to do something to at least help with patrolling this camp, or end the standoff (final costs of this protest were $38 million to the state). But all that happened was the Corps of Engineers decided the developers had to wait for an environmental assessment to finish. Obama’s Dept. of Justice did nothing to help. When Trump took office, it took 4 days — 4 days! — to solve a problem that Obama didn’t seem to know how to solve in almost half a year! So it’s understandable that farmers also appreciate Trump killing the WOTUS nonsense.
With that kind of change in attitude toward business and upholding the law of the land, it’s no wonder the stock market has soared. It’s likely more stock rally will follow, perhaps every bit as strong as last year. A strong U.S. economy will eventually spill into agriculture as well as the world economy, so that is good news for farmers.