U.S. corn and soybean markets may depend on Brazil monsoon season for direction – Agweek

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While the month of September is known as the kick off to the U.S. harvest season, it is also important to remember it coincides with the start of the South American planting season. Particularly for Brazil’s first crop corn and soybeans as the country’s second crop corn harvest comes to an end. With Brazil’s production for both crops in Brazil moving steadily higher over the past decade, key production areas become a major focus as the crops develop. However, the crop needs to get planted first.

From May to August, key agricultural areas of Brazil faced their driest weather conditions since 1981 — it's the worst drought the country has experienced in over 40 years. While hot and dry conditions are common for this time of year, these conditions have been extreme in 2024, partially due to the weather pattern transition from El Niño to La Niña. For Mato Grosso, Brazil’s major soybean production region, La Niña tends to delay the rainy season. With the soybean planting season set to kick off in the region next week, planting delays have started to circulate as monsoons have yet to develop.

This may sound familiar and it should. Late last fall, corn and soybean markets rallied going into the end of the year on this same type of scenario. Just remember, in 2023 the trade didn’t start to take notice of these conditions until October/November. Right now, it's early in the planting window. As of this past week, Brazil’s first crop corn is reported to be 15% planted, just behind last year's pace of 17%. Soybean planting has yet to begin but it should be shortly.

Typically, early October marks the beginning of the monsoon season in Brazil. Unfortunately, there are no signs of relief in sight. As a result, some regions of Mato Grosso may reach 200 days without rain. Yikes. This will keep the region a point of concern as it accounts for 33% of Brazil’s total corn production and 26% of its total soybean production. Areas further south are dealing with better conditions but planting there will not start until mid-October. As a result, updated forecast models could be potential market movers going forward.

While weather can greatly affect final production, it's important to reiterate that it's early in the South American planting season. Last year, the rains arrived toward the end of the year and once they fell, so did grain prices. Despite production estimates slowly moving lower this past year, Brazil’s final production added to the global surplus of both corn and soybeans. With that scenario fresh in the trade’s mind, it may cause a slower reaction as the situation develops in 2024. Still, some points will be hard to ignore. If the rains fail to arrive in a timely manner it will ultimately result in planting delays. Soybean planting delays guarantee second crop corn planting delays as well. That makes the corn crop heavily dependent on a normal weather season establishing to finish the crop. Remember, Brazil’s second crop corn accounts for 75% of the country’s total corn production.

As of now, like U.S. production forecasts, Brazil is expected to produce trend line yields for the upcoming crop year. Also adding to production concerns is the fact that many analysts aren’t expecting the normal growth of planted area this coming season. These estimates are based on not only the ongoing dry weather pattern but also depressed prices. Makes sense but both can quickly change and impact producer decisions.

For instance, if the monsoons fail to surface, conditions will be undoubtedly worse than last year in some key growing areas. Will that push producers elsewhere in the country to plant additional acres if prices rally? It could. It could also encourage farmers to continue planting later during the planting window if rains enter the forecast — like last year. However, if it gets too late, some producers may forgo soybean planting for the optimal window for corn planting. Or plant alternative crops. On the other hand, the monsoons could quickly enter the forecast in October. In fact, if that were to happen it could alleviate current moisture deficits in a matter of weeks, not months. That will encourage planting and could support current production estimates if weather forecasts turn more beneficial.

Over the coming weeks, the trade will be closely monitoring South American weather forecasts, planting progress and production estimates. With that, it's important to understand the market implications. So far, USDA estimates still expect record U.S. corn and soybean production. If that comes to fruition in the coming months, South America’s production could be the make or break of both markets. If the monsoons arrive, the soybean crop gets planted with a near normal growing season, record soybean production in Brazil is on the table. As a result, global soybean ending stocks will balloon which could quickly erode futures prices — for quite some time. The same goes for corn, as optimal soybean planting should equate to timely second crop corn planting. If this situation plays out, new lows are ahead for both corn and soybeans. However, it's also still possible at this point that the opposite plays out. U.S. production could move lower and the monsoons could continue to fail to develop and prices will experience momentum to the upside. Just remember, any combination at this point is possible. It's also worth noting that markets dislike uncertainty. That means, the market may wait for further confirmation — one way or the other — before getting too excited too early.

Whatever the outcome, grain futures will act accordingly. With last year’s action still fresh in mind, it's important to take advantage of opportunities as they arise. Don’t be afraid to price bushels for harvest delivery on a 20-50 cent rally on any of the three major grains. If you are worried about missing out on an extended move higher, buy call options after making the sales. There is much less risk involved with that strategy. I prefer to reward a sizable rally in the cash market than see another $2 drop on grain put into storage — that happened last year. Don’t get greedy.

Right now, South American planting and production is just another unknown looming over grain futures. However, it has the ability to quickly add weather premium to depressed prices. Just be cautious. If rains enter the forecast, any weather premium could quickly erode. Watch out. With that, producers and hedgers need to be taking advantage of sizable moves in the near term. South America’s weather will only be one of the many moving pieces markets will face over the coming months. Keep downside price protection in place, have sales targets working and stick to the plan.

Allison Thompson is a market analyst with The Money Farm in Ada, Minnesota. She previously has worked as a Farm Business Management instructor and is active on her family's Mahnomen, Minnesota, grain farm.

Opinion by Allison Thompson

Allison Thompson is a market analyst with The Money Farm located in Ada, Minnesota. She previously has worked as a Farm Business Management instructor and is active on her family's Mahnomen, Minnesota, grain farm. She recently purchased The Money Farm and has turned her experiences in the fields and classroom into a career where she is able to help producers facing the challenges of today’s markets.

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