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Morning markets: Brazil rains fail to dampen ag markets

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 MDA.

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.

Not everywhere…

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. noted that temperatures had remained high over northern Minas Gerais over the weekend, at 94-100 Fahrenheit (34-38 degrees Celsius).

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.

Brazil downgrade

Definitely, the rain has overall come as a large relief to producers.

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.

Yield impact

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.

Arabica coffee 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.

China setback

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.

'Water deficit'

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 said.

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.

Evening markets: sugar makes headway, but wheat struggles
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