Two fears drive markets. Omicron and SA building drought.
Grain futures have two concerns this morning. The initial concern is the deepening drought across S Brazil and Argentina, showing no signs of rains but in increasing temperatures into early 2022. The second concern is the spread of the covert variant omicron across the world and its potential negative impact on GDP rates. This has stock, energy futures, and most commodities lower on reduced usage thoughts. Also adding to the bearishness of the stock market is West Virginia Sen. Joe mansion Sunday indicating he would not support the BBB social and economic agenda bill for the Biden administration.
To date, the variants have not proven to be a detriment to world agricultural demand, with wheat/corn and soybean usage at record or near-record large rates. However, grain futures get caught up in the risk-off mentality of traders when across the board selling is seen in financial and commodity markets. The concern of the variant is not about its intensity, but that it is so virulent with its impact on hospital systems is elevated by its sheer numbers as it spread so quickly. It’s doubtful the US government will close down the economy over this. Still, the Biden administration will continue to push vaccinations and the use of antivirals which will allow the markets second fear, the building South American drought, to become highly important as we move into 2022.
South American weather forecasts are crop threatening with limited rainfall for the southern third of Brazil and all of Argentina over the next two weeks. Drought appears to be developing amid weeks of dryness and building heat. Crop assessments he exporting countries are in decline in longer-term the second of being extremely bullish corn and soy prices. Supply loss will be difficult to overlook amid exporter stocks/use ratios still near or at record lows.
South American weather over the weekend had rains falling over southern Argentina, which is not a primary crop area. Widely scattered showers continue to dot northern Brazil over the past 48 hours where rains are not needed. Weekend high temps were in the 80s to mid-90s with the heat focused on the drought area of West Parana. The 10-day rainfall forecast has a ridge of high-pressure resting across Argentina and S Brazil into January 5. This building heat has daily high temperatures reaching into the 90s and lower 100s. A drought is developing, which will deepen during January in the current La Niña pattern.
Cattle and feeder cattle futures were lower at the end of last week in a weaker outlook is anticipated with omicron pressures on world financial markets. This week is a holiday Christmas shortened trading week and features the cold storage report released on Wednesday and livestock slaughter and cattle on feed imports on Thursday. Negotiated cattle treated last week lower in a study to weaker outlook is offered this week. Last week cattle in Texas sold for dollars lower at $136, Kansas trade was down two dollars and $138 and dressed trade in Nebraska was two dollars lower at $218. It’s anticipated cash cattle trade will be wrapped up earlier this week due to the Christmas holiday.