BRAZIL and Argentina’s weather situation has been a tale of opposites in recent weeks, and agricultural output is suffering. Too much rain continues to delay both the soybean harvest and planting of the safrinha corn crop in Brazil. Simultaneously, production estimates have been cut as drought conditions plague row-crop production in Argentina.
As of early last week, Brazilian farmers had harvested around 35 per cent of the planted soybean area, the slowest pace in a decade. This compares to 49pc at the same time last year and a five-year average of 53pc.
Unseasonably dry conditions at the start of planting in October and November means the crop is a little later than usual, but far more critically, bouts of heavy rain across many production regions in February and early March have prevented farmers from accessing fields to harvest the ripe crop.
Tocantins hardest hit
The Northern Brazil state of Tocantins has been the hardest hit by the deluge. It rained almost every day in February, and received around 615 millimetres, more than twice the state’s monthly average. There are also significant issues in northern Mato Grosso, parts of Goias, Piaui, Maranhao, Para, and Parana.
The quality of the output is a growing concern for farmers and exporters alike. Some farmers in Tocantins have reportedly abandoned their crops due to seeds sprouting and rotting in the pod. And grain buyers have refused to accept the worst soybeans because they have inadequate capacity to dry the high-moisture product, and limited ability to blend out the low-quality soybeans on to export shipments while still meeting contract standards.
However, it appears the flooded paddocks and rotten beans are more a regional issue than a nation-wide problem, as crop estimates are holding up despite the stories of doom and gloom. Brazilian Government forecaster Conab raised its soybean production forecast by 1.3 million tonnes (Mt) last week to a record 135.1Mt. The USDA also raised its Brazilian soybean production estimate by 1Mt to 134Mt in its March supply update.
By contrast, agribusiness consultancy Safras & Mercado has hinted its current estimate of 133.1Mt is likely to be reduced in the coming days due to poor yields. And Dr Michael Cordonnier’s estimate was unchanged last week at 132Mt, but he does have a forward bias of neutral to potentially lower on account of the wet-weather issues.
The late harvest, in conjunction with logistics delays from farm to port, limited soybean exports in February. The vessel line-up at Brazilian ports got as high as 19Mt at one stage. This situation has turned around in March, with exports forecast to reach a record 15.5Mt for the month. However, terminal receivals are being stretched to the limit with long queues forcing trucks to wait up to two days to discharge the freshly reaped soybeans at the port.
Trouble for safrinha crop
The alarmingly slow pace of this year’s soybean harvest is a massive headache for the safrinha corn prospects, with planting delays the worst since the 2010-11 season. The crop represents around 80pc of the country’s total corn output, a significant proportion of which is exported. It is sown into the soybean stubble immediately after the harvest, with both operations quite often happening on the same day.
The ideal planting window has now passed in many regions, increasing the risk of yield penalties; the crop will be maturing and hitting its peak moisture requirement as the precipitation traditionally decreases. Once the crop is planted, growers will be praying for the current wet weather to continue into the dryer months of May and June.
According to Safras & Mercado, domestic corn consumption will hit a record 77.4Mt this season. Corn supplies are already tight, raising the possibility that the country will need to import from Paraguay and Argentina in coming months to quell domestic prices and bridge the supply gap to the late safrinha crop harvest.
Like soybeans, Conab is not buying the lower corn yield story just yet. It has increased its yield forecast from 5.52t per hectare in February to 5.54t/ha last week. This pushed production to a record 108.1Mt compared to 105.5Mt last month, including a 2.7Mt jump in the safrinha crop production to 82.8Mt. Dr Cordonnier is a little more conservative, leaving his output forecast at 105Mt with a neutral to lower forward bias.
Argentina drought prevails
In Argentina, the drought that started in mid-2020 and reduced this season’s winter-crop harvest has continued into 2021. The country’s Pampas farm belt has been exceptionally dry, and recent heatwave conditions have exacerbated the situation. The early planted soy fields are approaching harvest, with yields expected to be well below average.
The strong La Niña climate cycle forced the Buenos Aires Grain Exchange (BAGE) to reduce its row-crop production forecasts last week with a strong possibility of further downgrades if the dry continues. It sliced 2Mt off the soybean number to 44Mt and 1Mt off the corn estimate to 45Mt. Some improvement in soil moisture is forecast in the next two weeks, but the hot temperatures will also persist.
In a repeat of 2020, the second soybean crop, which accounts for 31pc of plantings, is the biggest casualty. In Argentina, the first soybean crop is traditionally planted in late October and early November, while the second crop is planted in late November and early December, immediately following the winter-crop harvest.
Recent crop ratings reflect the poor state of the crop. Early last week, the soybeans were rated at 10pc good-to-excellent compared to 15pc a week earlier and 44pc last year. On the flip side, 20pc of the crop was rated poor to very poor, with the balance of 70pc falling into the fair category. The soil moisture profile was 32pc short to very short and 68pc favourable to optimum, the latter down from 75pc last year.
Corn fares better
The corn picture is a little better but still well below average. The good-to-excellent category captured 25pc of the crop compared to 30pc a week earlier and 50pc last year, with 16pc rated poor to very poor and 59pc in fair condition. The soil-moisture status across the corn area was also pegged at 32pc short to very short and 68pc favourable to optimum, but the latter is down from 81pc a year earlier.
Stabilisation of the production outlook in South America is critical. The funds hold sizeable long positions in both corn and beans, and they seem happy to maintain that stance as long as there is uncertainty over the size and quality of the South American crops, global demand remains elevated, and the US balance sheet is tight.
The flow of soybeans from Brazil to China is improving rapidly, and Argentina continues to offer corn into the export market, putting a cap on global values. Other than the weather, the next significant row-crop signpost will be the US March Prospective Plantings report from the USDA, due for release at the end of the month.