South American row crops tell a tale of two opposites

With Brazil’s 2023 soybean harvest winding down, record production has been locked in following favourable growing conditions across most of the country this season. In contrast, devastating drought conditions in southern neighbour Argentina will likely reduce this year’s soybean harvest to the smallest in 20 years.

Brazil’s national supply company Companhia Nacional de Abastecimento (CONAB) called the soybean harvest 97.2 percent complete early last week, based on their planted area estimate of 43.8 million hectares (Mha). In early May, CONAB put production at a record 154.8 million tonnes (Mt), 0.8pc higher than its April estimate, as yields continue to impress. This puts Brazil’s soybean output at a phenomenal 42pc of the USDA’s projected global production figure of 370.42Mt for 2022-23.

Brazilian consultancy firm Safras & Mercado updated its soybean output estimate last week, pegging it a tad higher than CONAB at 155.66Mt. This is 21.1pc higher than the 2021-22 crop, the second biggest on record at 128.5Mt, and 11.6pc higher than the record crop of 139.5Mt harvested in 2020-21.

Safras and Mercado called the planted area 44.39Mha, an increase of 4.8pc from 42.34Mha a year earlier. That returns a crop yield of 3.51 tonnes per hectare against 3.33t/ha last season. The four biggest crops on record in the past four seasons highlight the massive growth in the planted area, which has reportedly grown by 20pc, or 7.1Mha, in the past five years. And with growing global demand holding prices at relatively elevated levels, and a favourable exchange rate, that trend is expected to continue.

As production grows, so too does the exportable surplus, export projections and competition for the United States. CONAB now expects soybean exports to hit a record 95Mt, dominating global trade at 56.4pc of the USDA’s worldwide export estimate. China is the biggest destination, accounting for more than 50pc of Brazilian exports over the past 12 months, and there is no evidence to suggest that trend won’t continue as well. Argentina is forecast to have the largest import growth in 2022-23, up more than 116pc, as domestic crushers look to supplement fading domestic production with imports from other South American producers, primarily Brazil.

Argentina’s soybean production prospects this season are the complete antithesis of Brazil, with grower prayers for rain going largely unanswered as they watched yields diminish by the day. The Buenos Aires Grain Exchange shaved another 1.5Mt off its 2022-23 production estimate last week as the drought rages on and early harvest yields disappoint. The BAGE forecast now sits at 21Mt off a planted area of 16.2Mha, down 51.5pc from 43.3Mt off 16.3Mha in 2021-22. The USDA is away with the pixies, leaving production unchanged at 27Mt in its May supply-and-demand update, despite the well-publicised production woes.

The BAGE crop ratings for the week ending May 17 put just 4pc of the nation’s soybean crop in the good-to-excellent category, unchanged week on week. There were some isolated falls of rain earlier in the month which will benefit the later crops and led to a three-percentage point increase in the fair rating to 40pc of the crop area and an equivalent decrease in the poor-to-very poor rated fields to 56pc of the planted area.

As of May 10, BAGE reported that 1.45Mha, or almost 9pc of the total planted area, had been reported as lost or in a condition so poor that it was not worth harvesting. Of the remaining 14.75Mha, 51.6pc, or 7.61Mha, had been harvested, with the average yield sitting at 1.56t/ha and volume thus far sitting at 11.86Mt.

Argentina is the world’s biggest soybean meal exporter, with a crushing capacity of around 60Mt. That will make for an extremely challenging year ahead, with production currently sitting at just over a third of that capacity. Imports will have to be at least 10Mt in the next 12 months just to sustain the processing businesses. And if the crush margin allows, that number could easily end up much higher.

The South American corn story is distressingly similar to soybeans, with Brazil looking at a record crop and Argentina potentially staring down the barrel of its worst harvest since 2015 if crop-saving rains fail to materialise. CONAB’s latest production update put Brazil’s corn crop at a record 125.54Mt, 11pc higher than last season. This is made up of a first crop of 27.05Mt, 8.1pc higher year-on-year, a second crop of 96.14Mt, 11.9pc higher than a year earlier, and a third crop 6.2 percentage points higher than 2021-22 at 2.35Mt.

While the second crop did go in late in many regions due to the delayed soybean harvest, the weather has been favourable thus far. The dry season has arrived, but the northern areas are advanced enough to get through to harvest. In the south, the crop is just starting to pollinate, and there are some areas of concern due to a dry forecast and pockets of moisture stress. However, the broader worry is extensive frost before pollination finishes in mid-June.

CONAB is calling corn exports 48Mt, which is a big headache for the US farmer as China looks to cancel more US purchases and switch to Brazilian supplies, which are upwards of US$30/t cheaper for third-quarter delivery. Nonetheless, the USDA is spruiking an even bigger export figure for Brazil of 53Mt in 2022/23, comfortably moving Brazil past the United States into the top spot on the global export volume chart.

The corn harvest in Argentina is progressing slowly as farmers prioritise soybean fieldwork. According to BAGE, farmers have harvested around 21.2pc of the harvestable area as of 10 May, with 6.74Mt now in the bin for an average yield of 4.54t/ha. This supports the exchange’s current production estimate of 36Mt, unchanged from its April update, but yields are expected to fall away as harvest progresses. The Rosario Grain Exchange is not as optimistic and has been calling corn production 32Mt for a couple of months now.

At this early stage of harvest, BAGE has the abandoned area at just over 100,000ha, but this is expected to balloon in the absence of substantial rains to save the later-sown crops. Crop ratings as of May 10 put 4pc in the good-to-excellent category, 43pc was considered to be in fair condition, and 53pc of the crop area was rated poor to very poor.

Traditionally the world’s third-biggest exporter of corn, the diminishing crop is expected to see Argentina’s exports drop by 28pc to 25Mt, which could see it fall to fourth place on the list behind Ukraine, assuming the grain corridor continues to operate, and export assets are not targeted by Putin’s senseless, narcissistic aggression.

Tags: Production, drought, yields, soybean meal, China, forecast, harvest, planted area, corn, output, export, Argentina, Brazil, estimate, soybean