Crop Progress in Brazil and Price History
Update for October 21st, 2020
Central regions of Brazil received scattered rainfall last week which has improved planting conditions. There are 2 main agencies that report crop progress and conditions in South America/Brazil, those are SAFRAS & Mercado and AgRural. According to a survey completed by SAFRAS & Mercado 47.2% of the first crop corn had been planted as of Friday. Estimates for soybean planting varied by agency but range from 6.1% to 7.9%. Planting progress is considerably lower than last year when 19.5% had been planted and is also well off the average of 17.3%. By state Mato Grosso has 8.2% of their soybean crop planted while Parana has 16%.
Brazil’s 3-day precipitation forecast has light scattered rains across several key growing regions.
Brazil’s 3-7 day precipitation forecast has more widespread and increased rainfall amounts.
The slow start to the planting season has prompted the government to suspend import tariffs into 2021. On October 16th Brazil announced they are lifting all tariffs for soybean imports which will have all import taxes suspended until January 15th and the exemption for corn will remain in place until March 31st. Many in the trade believe this indicates that the Brazilian government is concerned they will not be able to meet their soybean export obligations which could mean more bushels will need to be sourced out of the U.S. to meet global demand. AgriCensus reports that about 55% of Brazil’s 2020/21 soybean crop is either sold or spoken for through the use of barter transactions at lower prices.
A delay in exports out of South America by just 1 month is equivalent to 220 million bushels which opens up the possibility for additional sales of U.S. supplies. But significant imports to Brazil from the U.S. face several stumbling blocks including: current price spreads along with several regulatory and logistical challenges. For example, currently there at least 9 varieties of corn and soybeans that are approved for use in the U.S. which have not been approved in Brazil. And since grain is not sorted by variety prior to export any Brazilian importer would need to submit a special approval request to the countries National Technical Commission on Biosecurity. Another issue is logistics. Brazil’s bulk grain and oilseed port terminals are specifically set up to handle exports and engineering a change that would set up the terminals for imports would be expensive and time consuming. Add to this the fact that most of the crush facilities in Brazil are in the interior of the country, which significantly increases transportation costs and will also be a limiting factor. (USDA)
South American Crop Consultant Dr. Michael Cordonnier has estimated Brazil’s 2020 soybean production at 132 MMT and his bias is neutral as we move further into the season. Cordonnier says, “Even though a delayed planting of soybeans in Brazil does not necessarily mean potential lower yields, I am increasingly concerned that the strengthening La Niña could result in dry periods during pod filling in December and January. Therefore, I feel there is more of a downside risk for the Brazilian soybean crop than upside potential, but we will not know that for sure until the soybeans start to set pods.” As far as the Brazilian corn crop is concerned he is remaining steady with his previous estimate of 110 MMT and has a neutral bias moving forward at this time. He added though that late planted soybeans generally equate to later than normal planted Safrinha corn crop which typically decreases final yields.
Dr. Cordonnier has estimated the Argentine soybean and corn crops at 52 MMT and 50 MMT respectively. Drought conditions have slowed planting progress but there are more chances for precipitation this week in the forecast.
Looking at export inspections for the week ending October 15th soybeans continue to lead. Currently soybean export volume is running 55% above the 10 week average with 80% of shipments headed to China. Corn exports also show strength and are slightly above the average with China accounting for 40% of the volume. Monday we received an export sales notice of 468,000 metric tons of corn which was sold to Mexico and unknown destinations.
China has continued to increase purchases of U.S. corn and the current USDA estimate of 7.2 MMT’s is not matching up with current and expected sales. As of October 8th the U.S. has exported 1.371 MMT of corn to China and has an additional 8.745 MMT of outstanding sales already on the books, bringing the total to 10 MMT. Brian Grete of Pro Farmer explained, “The bottom line is China will import as much corn as it needs. Estimates are 20 to 30 MMT. USDA isn’t going to change its China corn import forecast until there’s a policy change. That’s how the World Board does it even though everyone knows the 7MMT forecast is laughable.” Brad Lubben of the University of Nebraska says that if or when a policy change occurs the U.S. and their other trading partners probably won’t know until after the fact. “Whether it ultimately is an official announcement or whether it's on a contractual basis, every purchase is qualified or not qualified, we'll have a difficult time knowing until it's over. Not to relate it to and scale to the Great Russian Grain Robbery of the early 1970’s but it was called a robbery because we didn’t know about it until it had happened. If China’s really bold about making purchases now, there’s no reason for them to say, “We’re going to make more purchases” They do it and then we calculate it after the fact.” There are no laws that require an advance notice of policy changes. China is known for making these types of decisions and not alerting trading partners and Lubben expects they likely won’t do so this time either.
Grete also pointed out that it is difficult to measure actual shipments compared to commitments to buy. “Measuring commitments versus actual shipments is clearly one of the challenges that USDA is currently having and trying to decide: How much do you raise export projections based on commitments versus actual shipments? In a declining market, there’s all kinds of reasons to cancel out on orders and try to take advantage of better prices to come. With strength we’ve seen in the market in the last two or three months, there’s not much reason to cancel on commitments.”
So how much higher will prices go is the million dollar question. Looking at what has happened in recent years could offer some insight. Right now traders are watching the $4.10 to $4.20 price level because prices haven’t been higher since May-Jun-Jul of 2019. Which is when massive flooding and excessive spring rainfall delayed planting and produced large amounts of prevent plant acres across several U.S. states. Prior to 2019:
May-Jun of 2016 when we reached the $4.30s
Jul of 2015 we reached $4.43
May of 2014 corn traded to $5.19
Feb, 2013 prices hit $7.46
August, 2012 the highest price ever $8.43
Currently soybean prices are trading well above $10 and some months are trading over $10.70 per bushel. Looking at the soybean price history chart below, notice that the last time soybeans traded above $11.00 was Jun-Jul of 2016 when prices peaked at $12.08 per bushel.
Weather across much of the Upper Midwest has turned cold and wet. Another disturbance is expected to arrive Wednesday night into Thursday that will help to rebound temps, but the warmer air won’t last long.
Higher moisture levels are expected to accompany the warmer air. This combination is expected to produce widespread precipitation. The EURO model rainfall totals through Friday are shown in the map below.
Following this system we can expect the return of cold air Friday night that will last throughout the weekend. Saturday looks to be dry but rain and or snow is expected to move back into the area on Sunday, it’s too early for any accurate precipitation totals, but it is certainly worth watching.
The NOAA forecast map below indicates the total precipitation expected through Sunday.
The 6 to 10 day outlooks show that most of the country will see unseasonably cool temps and above average precipitation.