Technically Speaking

Although there is sure to be a volatile five to six weeks of South American weather ahead to endure, the current forecast can be described as ideal. Daily rain showers in central and northern Brazil, some heavy rain in southern Brazil, and a favorable forecast for Argentina has crop scouts painting an awfully bearish scenario down the road. The next two weeks look to feature more bearish weather for South America, and unless the last-half of December and first-half of January turn hot and dry, the combined production of Argentina, Brazil, and even Paraguay is set to break all records. Even though USDA has had the highest Brazil production estimate of 169 million metric tons (mmt) (6.2 bb), recently private crop analysts have that potential rising by another 3 mmt to 7 mmt (110 mb to 257 mb). Also, private crop scouts see Argentine soy production possibly rising as much as 6 mmt (220 mb) above USDA's estimate. The prospect that South American soy production could rise by as much as 750 million bushels (mb) to 800 mb above last year, when coupled with the largest U.S. soy stocks in five years, does not paint a rosy picture for 2025 soybean prices.

On the technical side, while the break under the solid support of the past few months is surely negative, the market is approaching a bit oversold. A bounce or two from here with any change in weather or increased demand can surely rally the market back up to the $10.15 to $10.30 area where plentiful selling should emerge. However, should weather continue to cooperate in the Southern Hemisphere, the current $10.00 level on November 2025 soy futures could look high.

Wheat, and especially Kansas City wheat, seems to be the preferred short leg of any spread trade. Since the high set in late May, KC March has plunged nearly $2.50 per bushel. The advancing harvests in both Argentina and Australia has added pressure to a market already beaten down by the year-long aggression from the number one world wheat exporter, Russia. Also pressuring wheat lately has been the huge improvement in U.S. winter wheat conditions. In spite of that, U.S. wheat export sales have rebounded well in the new-crop year, and word from the Russian ag minister of their plan to cap grain exports while at the same time raising export taxes to counter inflation should have a positive impact on world wheat prices. Last year in the February through March period, Russia exported 29 mmt of grain. This year, plans are for exports to be limited to just 11 mmt. Added to that is the proposed 18% increase in export taxes on wheat beginning in just two days.

The U.S. wheat futures markets are approaching the oversold level, so some sort of short-covering rally is not out of the question. Wheat has been beaten up badly, and downside potential is likely to be limited in coming weeks.

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Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of commodities, futures or options involve substantial risk and are not suitable for everyone.

Dana Mantini can be reached at Dana.Mantini@DTN.com

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Editor's Note:

Also, as a new administration prepares to take office in the U.S., farmers are preparing for the next growing season. In this year's DTN Ag Summit, we'll examine the state of national farm policy, including timing on a farm bill, makeup of the ag committees and new leadership at USDA. A few of the winners of this year's America's Best Farmers and Ranchers award share what they've learned from selling directly to consumers, and the DTN markets and weather team will offer their perspective on what's in store for 2025.

The DTN Ag Summit is scheduled for Dec. 5-6, 2024. Use this link to sign up: https://dtn.link/…

You can also see more about the upcoming Summit at https://www.dtnpf.com/…

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