... – usually, export premiums handle this role. However, with a tight soybean balance in the US, the prospect of lower production in Brazil suggests increased foreign demand for the American market, competing with the strong domestic market.
As a result, futures at CBOT have been more sensitive to the weather maps for Brazil, even showing some weakness as better forecasts emerged last week. Nevertheless, for now, the cash market in Brazil doesn't seem convinced that the amount and consistency of these rains are enough to bring significant change.
Reports suggest that farmers in Brazil were already hesitant to sell, and with heightened concerns and the possibility of higher prices, they are likely to stand firm on this stance. With slow sales, we anticipate a strong local cash market. This has led to an unusual scenario where futures and premiums are rising simultaneously.
Even though support for premiums is generally expected, it's even more likely when CBOT quickly responds to improved weather forecasts, while the local market remains skeptical, as observed in the previous week.
One final aspect to monitor regarding the premium is that, despite relatively high production cuts, there's still a big chance that output in Brazil will still be substantial.
With low farmer selling and storage capacity deficits, premiums will likely be under pressure at harvest time – perhaps not as much as last year, but still notable.
In summary, considering these factors, we estimate Brazilian production at 160 million tons, a slight decrease from the previous estimate of 162 million tons. While there's potential for further cuts if poor weather conditions persist, there's still much uncertainty, and it's challenging to make definitive claims before the crop's reproductive stages in December and January.
Despite improved rainfall forecasts, the local cash market does not appear to be buying it. CBOT prices are more volatile and respond faster to new model runs, premiums, however, may continue to find support on low sales.
