The dry and hot spell in Brazil, which has supported prices
of the likes of coffee and soybeans, is easing off.
But by how much, and what damage has it already done?
The weekend brought showers with some 75% coverage to Sao
Paulo, Parana, southern and western Minas Gerais, eastern Santa Catarina,
western Bahia, Goias, Mato Grosso, and northern Mato Grosso do Sul, according to
Most of the rain was of 0.25-1.5 inches, but there were
areas with 4.75 inches.
And there will be further showers this week, mainly for Mato
Grosso and Goias.
However, the picture is not all so bright.
Mato Grosso is one state which does not need rain so much,
having already received plenty, and with the soybean harvest already largely
ongoing, making dampness a hindrance.
Furthermore, MDA said that "some dryness is likely to linger
across central Minas Gerais", the top coffee-growing state.
WxRisk.com noted that temperatures had remained high over
northern Minas Gerais over the weekend, at 94-100 Fahrenheit (34-38 degrees
And the weather service said that this week, models suggest
that "most of east central Brazil, including Bahia, Minas Gerais, into Sao
Paulo stays pretty dry".
From the coming weekend, while Sao Paulo, the key sugar cane and orange producing state, will get rain, Minas Gerais stays dry.
Definitely, the rain has overall come as a large relief to
Consultancy AgRural, speaking of soybeans said that "with
the return of rain and the drop in temperatures we've seen at the end of the
first half of the month, an increase in productivity in some areas cannot be
ruled out", citing the "high resilience" of the oilseed.
(US farmers received a reminder of that in 2012, when they
managed a half decent yield thanks to late rains which relieved the worst
drought in a generation.)
Nonetheless, AgRural cut by 1.8m tonnes its forecast for
Brazil's soybean crop, taking it to 87m tonnes, well below the roughly 90m-tonne
level which had become something of a market consensus.
Michael Cordonnier at Soybean and Corn Advisor gave further testimony
to the damage the dryness has caused, saying that "in areas of northern Parana,
some soybean yields are down as much as 45%.
"It is the later planted soybeans that have been most
impacted because the hot and dry conditions occurred during the critical pod-filling
period," he said.
"The state of Sao Paulo has been one of the hardest hit
areas and the Secretary of Agriculture in the state estimates that some soybean
yields in the state might be down as much as 40%."
The concerns helped Chicago soybeans return from a long
weekend in the US, which celebrated President's Day on Monday, to add 0.8% to
$13.47 ¾ a bushel for March delivery as of 09:50 UK time (03:50 Chicago time).
That said, direction later may be determined by US industry
soybean crush data for January from the NPOA, expected to show a small
month-on-month decline, thanks to the cold weather then.
'Taken a beating'
Among soft commodities affected by Brazil's heat, raw sugar opened firm too in New York,
adding 0.5% to 15.71 cents a pound, following headway by London white sugar in the last session.
"With six weeks' worth of drought conditions in Brazil, the
top producer's sugar cane crop has taken a beating," said Vanessa Tan at
Phillip Futures, quoting Unica's warning on Monday that Brazil Centre South cane
output looked like in 2014-15 matching that of the current year, rather than
rising some 20m tonnes as many analysts had expected.
That said, "2013 was still a record production year
suggesting there will be no shortage of sugar in 2014", Luke Mathews at
Commonwealth Bank of Australia pointed out.
was higher too, up 0.8% at 143.40 cents a pound for May delivery, factoring in
the relatively adverse weather remaining in Minas Gerais.
Also in New York, cotton
for May added 0.3% to 89.32 cents a pound, helped by data on Monday showing
that Chinese cotton plantings will fall 10.7% this year.
The Cotton Research Institute of Chinese Academy of
Agricultural Sciences, which made the forecast after a survey of farmers, said
that the decline reflected a 19.4% fall in profitability from cotton last year,
thanks to declining output and higher costs.
Uncertainty over China's reforms to cotton subsidies are also
prompting farmers to think twice about planting the fibre.
The forecast decline in sowings for the top producing
country is more than the 8.9% expected by the China Cotton Association.
Back in Chicago, wheat
made some early headway too, up 0.5% at $6.01 ½ a bushel, looking for its first
close above $6 a bushel in five weeks.
US dryness is providing some support, in raising concerns
for winter wheat seedlings when they exit dormancy.
"The water deficit before spring in the US is still worrying
for farmers, a situation which will be monitored by market operators," Agritel
However, technical factors are also providing some support, with
the $6 a bushel mark viewed as a key psychological level, while hedge funds
still have a large net short in Chicago wheat, providing the potential for significant
upward pressure if they decide close up their positions.
Corn, meanwhile, added
0.3% to $4.52 ¼ a bushel for March, handed some support by Brazil's dryness, besides
by the strength in fellow grain wheat.