Traders Nervous About Southern Argentine Crop Losses

Grain and soybean markets are higher in overnight trading after the latest GFS forecast for the 7-15 day period turned drier for southern Argentina, an area already baking in hot, arid conditions.\r\n   Central and northern Argentina, along with Brazil, are forecast to receive favorable precipitation into the end of the month.  This should help pollinating corn and the growing soybean crops while not interfering with areas where early soybeans are being harvested.\r\n   But traders will be struggling to assess the degree of yield loss in southern Argentina from the hot/dry conditions in December and early January.\r\n   The forecast, and its effect on the market, is a change from Tuesday when talk of improved Argentine weather and a rumored switch by Chinese buyers to South American soybeans from US supplies brought a 2% drop.  There is talk that Chinese buyers have switched a couple of February soybean cargoes to Brazil. \r\n   Analysts were expecting the Chinese to make such a move, but Tuesday’s markets still could be a harbinger of things to come – perhaps a bit early, since the “February break” may be starting in January as traders speculate that the early Brazilian harvest of impressive yields could allow Brazil to ship more soybeans in February than was thought.\r\n   Corn and wheat received tangential support from a declining soybean market in that spread traders unwound long soybean/short grains spreads, reported.  Grains also received support from ideas the market had become oversold and was due for a bounce, especially after hitting technical support.\r\n   Wheat continues to grab support from an arctic blast hitting the US now.  Much of the winter wheat has adequate snow cover, but some in the Plains does not, leading to thoughts of winter kill.\r\n   Ongoing drought in the Plains is adding stress to the winter wheat, with some climatologists saying the drought is not over, despite better rains last fall during planting time.\r\n   The last round of extremely cold weather across much of the US cattle country disrupted meat processing and truck movement into and out of the plants, according to the USDA’s latest Livestock, Dairy and Poultry Outlook report.  The cold also affected the growth rate of livestock by forcing them to use more of their food for maintenance and less for growth and fattening.\r\n   The weather and the fact that the Christmas and New Year’s holidays came in the middle of the week so disrupted cattle slaughter that it was difficult for USDA economists to determine if an upward trend in prices is developing.\r\n   Certainly there is cause to think so with cash and futures prices at record levels as beef prices and packer margins rocket higher.  \r\n   However, there is a tendency for traders to think consumers are seeing the full force of wholesale beef price increases when they are not.  Retailers will not mark up prices to reflect such rapid advances in wholesale prices because they are afraid of scaring them off.  They will may more incremental changes, causing a lag in price advances and declines.\r\n   Cash cattle markets did not trade on Tuesday as traders watched futures move sharply higher amid continued impressive gains in wholesale beef prices.  Besides the stronger beef, futures markets are holding an optimistic attitude about further advances in the cash market this week.\r\n   But the record-high beef markets are causing some to think a seasonal top may be attained this week.\r\n   The USDA’s choice cutout Tuesday was up $3.16 per cwt to $239.72, while the select cutout was up $2.70 at $237.15.  The choice/select spread widened to $2.58, and there were only 66 loads of fabricated cuts sold into the spot market.\r\n   The CME Feeder Cattle Index for the seven days ending Monday was $170.49 per cwt, down $0.06 for the day.  By contrast, the Jan futures contract settled Tuesday at $169.80, down $0.20.\r\n