As explained by the brokerage and consultant Granar, among the reasons for these drops in the international grain market stands out “the lack of news from Chinese demand, in the midst of Covid infections that cannot be contained and that remain between question marks the direction of the Chinese economy and demand”.
In addition, investors’ fears for the direction of the world economy and the chances of a recessive process were added to this situation, on a day in which oil also experienced a sharp drop and with the minutes of the Federal Reserve of United States reflecting an agreement among agency officials that there will be no rate cut during 2023, due to the possibility that this will accelerate the increase in inflation again.
The market faces many questions with hardly any answers: will the lifting of sanitary restrictions in China favor a rapid recovery of the Asian giant? What marks will the storm in the United States and the drought in Argentina leave on crops? How will the Ukrainian conflict evolve?
“The market is prudent, especially because of China,” where manufacturing activity fell in December for the fifth straight month, says Michaël Zuzolo of Global Commodity Analytics consultancy.
The other big concern is soy. “The market is divided between what is announced as a large harvest in Brazil and the drought in Argentina. It is looking to determine to what extent one will compensate the other,” says Arlan Suderman, from the Stonex platform. But, he stresses that it is too early to estimate the impact of the drought, “ripening is slow in Argentina.”
For now, as explained in the market, the drought in Argentina is acting as a kind of support so that the price of the oilseed does not continue to fall, but for the moment everything is uncertain and that can hit the local economy hard.
The most severe forecasts anticipate that the impact of the drought could lead to a cut in farm income of around US$15,000 million in 2023. In a context in which the producer, if he does not once again receive incentives to sell their grains, they will tend to sell by the drop.
Source: Ambito
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