Weather in Brazil and Export Outlooks
Update for December 3rd, 2020
Soybean export sales have been on the decline and the outlook for additional sales to China prior to the South American harvest begins is fading. Chinese purchases of Brazilian soybeans have been on the books for many weeks with deliveries scheduled for the February-April timeframe. These new crop soybeans from Brazil are a significant discount to U.S. soybeans. We have also heard that Chinese crushers have ample supplies already booked to get them through December and most of January. So, at this point most analysts feel that unless China needs additional supplies prior to the flow of Brazil’s soybean shipments our export market to China is tailing off.
AgRural reports that 87% of Brazils soybean crop has been planted which is in-line with the average historical pace. Rio Grande do Sul and areas in the northeastern part of the country are the regions still working to complete planting. Dry conditions delayed the start to the planting season and continue to threaten yield potentials. Rains have fallen over some of the driest portions of Brazil and more is expected in the coming week. Forecasts show that most of the key soybean growing regions can expect 1.5 – 3 inches of rain over the next 7 days, this system will help avert major crop stress for now.
Last week crop scout Dr. Michael Cordonnier estimated this season’s Brazilian soybean crop at 132 MMT but has lowered his outlook this week to 130 MMT (5 MMT less than current USDA estimate) he expects this outlook to remain neutral or decline as the season progresses. His corn production estimate was also reduced by 2 MMT vs his last estimate of 102 MMT- if realized this would reduce total corn production below last years. Other groups will soon be releasing their estimates as well ahead of the USDA’s December report which will be announced next Thursday, December 10th. Keep in mind though that although the yields may be decreasing the overall acres planted to soybean has increased from a year ago and final production totals are predicted to exceed last year’s record harvest by over 4 MMT. Many analysts believe that Chinese demand will continue to grow which will work to keep world supplies tight even with the growth expected in Brazil’s soybean production.
Source: Soybean & Corn Advisor, Inc.
Brazil appears to be headed into a rainy period during the 4-7 day forecast. The maps below include the percentage of the national soybean crop raised in each key state. Mato Grosso raises 1/3 of the countries soybean crop, Goias 12%, and Mato Grosso do Sul 7% and all are expected to be wet.
The 8-15 day precipitation forecast for Brazil calls for up to 5 inches of rain in the biggest production areas of Brazil.
Right now, the market is primarily focused on weather issues in key South American growing regions. In a few months that focus will return to U.S. growing conditions. Drought has been impacting a sizable portion of the country for several months including most of the western U.S., Northern and Southern Plains and western Corn Belt. This unseasonably dry weather pattern remains in place and is now threatening U.S. HRW acres. If this pattern remains in place into spring, which many indicators point to, the acres threatened by drought will intensify and extend to a number of crops in many top corn and soybean producing states during the 2021 growing season.
The first map shown below indicates the Total Expected Rainfall for the country through December 16th.
The USDA/FSA are reminding farmers and ranchers, that have not already done so, to apply for the Coronavirus Food Assistance Program 2 (CFAP2). The deadline for sign-up is next Friday, December 11th. For a list of eligible commodities, payment rates and calculations you can go online to farmers.gov/cfap.
Prior to the November election I included information regarding the Green New Deal and what those proposed changes could/would do to the U.S. agriculture industry. This article published on the Pro Farmer website explains the hurdles that our industry as a whole will possibly face in the near future.
The U.S. biofuel industry, especially ethanol proponents, worry a lot. History shows that when an industry is largely based on a government mandate, the economic fate in large part rests on the operation of that mandate.
2022 is poised to be a very consequential year for the biofuels industry given the confluence of three things: the “set” post-2022, the expiration of the tax credit and mid-term elections in several crucial midwestern states and districts. Some long- and short-term biofuel issues include:
Final 2021 biofuel, 2022 biodiesel levels. Biofuel supporters have continued to push for the agency to put out their final decisions, though some are now urging the agency to just leave it up to the incoming Biden administration. This is not the first time an administration has missed the statutory deadline, though the Trump administration had made the deadline each year until now. Some have written stories that the industry is being left in “disarray” due to the lack of the final levels. However, in December 2015, EPA announced the final calendar year biofuel levels for 2014, 2015 and 2016, well behind the statutory deadline for 2014 and 2015. EPA has indicated it has essentially had to reset its proposed levels as a result of the Covid impacts as that has affected forecast fuel usage levels and thus biofuel demand.
Help for biofuel industry. Any Covid aid package has been sought as a way to help struggling biofuel producers for impacts from the pandemic. But those calls have not been as strong in recent weeks with the industry output of ethanol continuing to rise.
Small refinery exemptions (SREs). Biofuel backers and opponents have well-staked-out positions on this topic, with biofuel backers having a court ruling on their side in this one. EPA has denied 54 gap-year requests submitted by refiners in a bid to put them on rack to win future SREs. Another 17 remain outstanding at EPA with now 41 SREs pending for the 2019 and 2020 compliance years combined. The Renewable Fuels Association has called for the current EPA to leave the decisions up to the Biden administration. That is an interesting stance given the prior rejections of the gap-year requests which were clearly submitted out of an expectation that the court ruling would mean few would receive them for the 2019 and 2020 compliance years.
RFS beyond 2022. The industry is focusing on the RFS beyond 2022 which is the final year that EPA has statutory authority for the program. That will be an issue that will build in 2021 and 2022 but will be driven largely by Congress with input from the administration.
Climate change. Biofuel supporters are counting on the push for addressing climate change to include expanded potential for biofuels as a way to lower harmful tailpipe emissions. That will have to depend in part on a view that biofuel production does not cause a negative contribution to carbon capture etc. That will mean more focus on advanced and cellulosic biofuel improvements to get the latter in particular to reach the key threshold of being economically viable.
Electric vehicles (EVs). This is an issue that biofuel interests have not publicly been commenting on extensively, but one that clearly has an impact on future biofuel demand. More miles driven by EVs reduces fuel demand and by extension biofuel demand.
USDA roll-out of the Higher Blends Infrastructure Incentive Program (HBIIP). Does that continue into the Biden administration?
Proposed E-15 labeling changes that have been sitting at EPA, reportedly approved but not yet published.
500-million-gallon remand required by the U.S. Circuit court that was “illegally” waived in the 2016 RFS.
What happens in 2035 when California and other jurisdictions in the U.S. and Canada ban new gas-powered vehicles?
The outlook for Saturday, December 5th through Wednesday, December 9th is shown below.