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FACTBOX: Global weather troubles influence agricultural prices, cloud outlook

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FACTBOX: Global weather troubles influence agricultural prices, cloud outlook

Highlights

66% chance of La-Nina during November-January

Dryness in Canada, US seen impacting spring wheat significantly

Brazil corn output down on weather disruption, concerns over US

Russia, Ukraine facing dry weather conditions

Grain, vegetable oil prices remain volatile driven by weather

Unpredictable weather is ruling agriculture markets, as supplies of major commodities are stretched thin allowing little room for output losses, while meteorological conditions in major producing countries look uncooperative.

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While ongoing weather troubles in the agriculturally prominent countries are influencing prices of wheat, corn, soybean, and vegetable oils, uncertain weather is likely to cast a shadow on production and price outlook going forward. The US, Canada, and parts of South America and the EU are facing historically dry weather conditions while other parts of the EU reel under devastating floods.

Additionally, chances of La-Nina in the latter part of the year was also adding to the mounting concerns around global weather.

The latest forecast by the US Climate Prediction Center said La Nina will potentially emerge during September-November and last through the 2021-22 winter, with a 66% chance during November-January.

The La Nina phenomenon, which is an occasional but natural cooling of the equatorial Pacific, is typically associated with above-normal rainfall in Southeast Asia, South Africa, India, and Australia, and drier weather in Argentina, Europe, Brazil, and the southern US.

Infrastructure

US/Canada

  • The US is witnessing historically dry conditions, with many western states reeling under severe to exceptional drought. These states are major producers of the country's spring wheat crop and account for nearly 20% of the US' total corn crop share.
  • In Canada -- the largest grower of spring wheat and canola -- extreme heat and drought conditions are having a devastating effect on canola and wheat crops grown in the Prairies region.

Brazil/Argentina

  • Brazil -- the second-largest corn exporter in the world -- suffered severe drought during most of the corn-growing months and in addition to that, the southern part of the country was affected by frost toward the end of June, which exacerbated corn yield losses.
  • Persisting drought conditions in Brazil have trickled down to Argentina through the Parana river basin. Rainfall remained low across northern Argentina in recent months, where most agricultural activities are concentrated.

EU/Black Sea

  • Southern and northern regions of Russia are experiencing dryness and rising temperatures, according to local reports.
  • Meanwhile, heavy rainfall lately in eastern France and western Germany resulted in severe flooding. The extremely wet weather in these areas stalled wheat harvesting and has likely led to quality declines, according to the weather agency, Maxar.
  • Dryness is also a concern for Ukraine as the temperature in central Ukraine has been well above the seasonal norm for a month now, according to reports.

Trade Flows

US/Canada

  • Dryness is hurting yield potential for spring wheat and the latest USDA data shows nearly 63% of the planted crop was seen under poor to very poor conditions. USDA sees US' 2021-22 marketing year spring wheat output at a 33-year low.
  • Corn production in the US is currently pegged slightly higher on the year for 2021-22. However, analysts said owing to the dryness in Western states, corn crop yield estimate may see reductions from the current forecast of trend line yield at 179.5 bushel/acre.
  • Soybeans in the US, which will undergo pollination in August, might make out of the current dryness unaffected if the forecast of rains materializes in August, S&P Global Platts Analytics said in a report.
  • Canada is struggling with extreme dryness, which is likely to dent the country's canola and spring wheat output in 2021-22.

Brazil/Argentina

  • A combination of dryness and frost has forced Brazil's CONAB to cut 2020-21 corn production forecast to 93.38 million mt, 9.1 million mt down from 2019-20. Exports from Brazil in 2020-21 are also likely to fall.
  • For Argentina, the USDA attache in Buenos Aires lowered 2020-21 soybean production estimate by 500,000 mt to 44.5 million mt, while soybean exports were also lowered 500,000 mt to 5 million mt.
  • In Argentina, the Parana river is experiencing the lowest downspout in about 77 years, hindering exports. This could favor Brazil's soybean and soy complex exports, as some ships may be required to complete loadings in Brazilian ports.

EU/Black Sea

  • Hot and dry weather in Russia has diminished 2021-22 wheat crop prospects. USDA lowered wheat production by 1 million mt to 85 million mt, while local agencies see bigger reductions.
  • Flooding situation seen at leading wheat exporters France and Germany, which may raise output concerns and influence global wheat supply chain, sources said.
  • Ukrainian wheat production outlook remains promising but hot and dry weather expected in the next couple of weeks can worsen yield outlook, Platts Analytics said. Ukrainian corn is also suffering from excessive heat, raising yield concerns.

Prices

US/Canada

  • Spring wheat futures on the Chicago Board of Trade were seen trading at multiyear highs, as production outlook for all major producers -- Canada, the US, and Russia -- remained disappointing. The September futures contract settled at $9.13/bu on July 20, the highest levels after November 2012, and up $1.50/bu on the month.
  • CBOT corn prices have remained volatile lately, as recent rains in the Midwest dampened the bullish sentiment that resulted earlier from dryness. As of July 20, the September contract settled at $5.74/bu, up 10 cents over the last month.
  • CBOT soybean and soy complex prices have been supported lately by dry weather forecasts and lower production in Argentina. US November soybeans settled at $13.94/bu July 20, up 1.5% on the month.
  • On July 20, the CBOT soyoil contract for December settled at 67.02 cents/lb, up 16.5% on the month.
  • Soybean oil and canola oil prices are edging higher over output concerns. Severe drought has already pushed canola prices to record levels and CBOT soy oil futures are trading higher as traders are wary that hot weather could impact US crop conditions.

Brazil/Argentina

  • Brazil corn price as of July 20 was at Real 97.49/60 kg, up from 95.72/60 kg a month ago, according to Brazil's Center for Advanced Studies on Applied Economics. Corn futures contract on Brazilian stock exchange B3 closed at Real 97.15/60 kg on July 20, up nearly 120% year on year.
  • In Brazil, the SOYBEX FOB Santos price was seen at $562.94/mt July 20, up 6.9% month on month.
  • The Soybean Oil Argentina FOB Up River price was assessed at $1,245.39/mt July 20, 11.4% higher from a month ago.

EU/Black Sea

  • Quality concerns around the Russian wheat crop have pushed down export prices for Russia. The FOB prices of 12.5% protein Russian wheat fell nearly 3% over a month to $246.25/mt July 20, according to Platts data.
  • For Ukraine, too, the export prices are declining. The FOB prices of 11.5% protein Ukrainian wheat fell nearly 5% over a month to $233.25/mt on July 20, Platts data showed.
  • Ukrainian corn prices were assessed at $268.25/mt July 20, down from $280/mt assessed nearly a month ago.