Monday, January 2, 2012

The North-South connection for grains

The most important driver for grain and soybean markets now is not what happens in North America but what is happening in South America. Brazil and Argentina have become key producers in not only wheat (Argentina) and soybeans (Brazil) but also more recently in corn. Argentina is now a major producer of soybeans with 19 million hectares versus 2 million hectares of corn. The size of the LA agricultural market is growing.  

Corn production in Brazil and Argentina now total 90 million metric tonnes versus the US of 312.7 million metric tonnes. LA is still a fraction of the US but the number is growing and becoming the key marginal corn producer. For soybeans Brazil and Argentina produced 127 versus 83 million metric tonnes for the US last year. 

Dry and hot weather related to El Nina has interrupted the growth cycle of both corn and soybeans. The chart shows why gthe winter months is such a key time for these crops. This is coming at a critical time and will be the driver of prices now but will spill-over to planting intention in the Spring. If the LA crop is poor, more planting will be made in the Midwest. The North-South connection is now the key driver of corn and soybean prices.

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