Grain pain: Good for US, not so good for Brazil and Argentina

Argentina and Brazil's agriculture industry is going through a rough patch after bad weather hit two key crops — soybeans and corn. But nobody in the United States is complaining.

"It was a case of too wet in Argentina and too dry in Brazil," said David Streit, founder and COO of Commodity Weather Group, a forecasting service in Washington.

The adverse weather in South America , coupled with heavy fund-buying, has lifted U.S. corn and soy-related futures in the past month. At the same time, the dollar has weakened since the end of March, making U.S. ag exports more competitive again.

"It's been a gift to the U.S. farmer," said Farha Aslam, a New York-based food analyst at wealth management firm Stephens. She noted strong corn exports out of the U.S. over the last two weeks. That's a reversal from the first quarter, when there was weak U.S. export activity for corn and soybeans.

El Nino weather phenomenon is to blame for some of the problems in South America.

In Argentina, early April rains interrupted the soybean harvest and flooded nearly a third of soy farms. The northeast region of the country had 8 to 20 inches of rain from El Nino-related storms, and experts believe the damage is irreversible this season. Argentina's soybean crop — the world's third largest — is projected to be down at least 5 percent from a year ago and maybe more.

In Brazil, there were 40 to 50 days of dry and sometimes hot weather conditions in Brazil during a critical time when the so-called safrinha crop (or second-season corn) was coming into the pollination stage. Commodity Weather Group estimates Brazil probably lost as much as 10 percent of the crop yield potential due to the arid conditions.

Brazil, the main soybean and corn competitor to the United States, exported so much of the corn crop that its livestock producers were short corn. Brazil is now having to import corn, and overseas buyers originally looking to get Brazil's corn will likely need to turn to U.S. supplies.

July corn futures have climbed more than 9 percent in the past month. On Monday, the most active corn futures contract ended up slightly to close at $3.9175 per bushel; the commodity is about 9 percent higher over the last month.

That bump is a welcome relief for American farmers struggling with low prices that have kept them below break-even levels for some time.

"Farmers are looking at this as an opportunity for the most part, and they should," said Sterling Liddell, an economist at Rabo AgriFinance in St. Louis. "There is quite a bit of selling against this— both old crop that was produced last fall, and also the new crop that's just going into the ground right now, is being presold."

As for soybean futures, prices are up about 13 percent in the past month and 20 percent in the last 2 months. On Monday, the July soybean contract ended up 1.4 percent at $10.4375 a bushel. Also, July soy meal futures jumped nearly 4 percent Monday to $347 per ton. Soy meal, helped by strong export demand, have soared 26 percent in the past month.

Both corn and soybeans may be close to the end of their runs, however.

"The soybean rally and corn rally is probably in the ninth inning or pretty much getting close to it," said James Cordier, a commodities trader in Tampa, Florida. "The only thing that would cause a higher leg up in soybeans and corn would be if we have weather concerns here in the United States. And so far we don't."

Last week, the U.S. Department of Agriculture's weekly exports sales report showed corn export sales for the 2015/2016 marketing year stood at 2.16 million metric tons, a marketing year high and a jump of 80 percent from the previous week.

The USDA is scheduled to release its updated weekly ag export data on Thursday, while also providing a separate monthly ag trade update. Aslam said the market is uncertain whether the U.S. government data will fully factor events in South America into the latest report.

"Ag export reports are becoming critical factors in driving the market right now, because it's become such an important part of the grain story," said Aslam. "I would say two months ago they were just much more of a non-event."

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