Grain Market Viewpoint

Inside Look at South American Crop Production

South American production continues to be questioned. Argentine weather was as expected over the weekend. If anything, the six-to-10-day looks to have gotten a little wetter and cooler. Many bears are saying the bulls have overdone the hype and weather-related risk premium associated with the crop. The USDA seems to agree, as they simply chose to offset the small Argentine crop reductions with an increase in Brazil's production. If you paid close attention to CONAB's numbers released last week for Brazil you would have seen the planted acreage numbers are much higher than most in the trade have been estimating. In fact total South American planted acreage is up by some 12 million acres. Personally, I believe the production itself is going to be there. BUT I question if it will be as strong as the USDA is currently estimating, and what type of logistical or political snafu's will take place as we move further down the road and more exclusively dependent on South American supplies?

Argentine inflation is now running at close to 30%, and the government is already taking steps to lock down and freeze prices. I am thinking we may actually start to see fewer export licenses granted in order to build a larger surplus of domestic supply to help keep a lid on domestic prices. There are also talks of port strikes in Brazil (maybe as early as Feb 18 or 19) that could start to become more of a concern as well. Let's also not forget Brazil's government just upped the ethanol blending levels from 20% to 25%, which should create another 320+ million gallons of ethanol demand. To help increase supplies Brazil is putting in several corn-based ethanol facilities. As we all know, this will chew through more of their domestic corn, in turn allowing less of a percentage for exports. This is why I do NOT agree with the recent USDA numbers that actually lowered Brazil's domestic corn usage by 2 million metric tons (mmt) in order to raise Brazil's corn export numbers to 19 mmt.

My point is, from a production stand point, South America is going to throw up huge numbers, there is no argument or debate, but they also might use a little more. Regardless of the weather from here on out, they are almost certain to produce an additional 30 mmt (maybe even more) of soybeans compared to last year. We may also see new record corn production. CONAB is thinking 5 mmt more corn than the current USDA estimate and 3 mmt more than last years record corn crop. This may be a little optimistic considering nearly all of the increase is coming from second crop corn production estimates. A crop that is just now going in the ground in many places, is still yet to be grown, yet to be harvested, and yet to be shipped. Understand this, in many key growing areas the window to plant second-crop corn will soon be closing (late-Feb), if producers plant any later than this they run a big risk of the crop extending out into a much drier period. I am hearing producers in Mato Grosso only have about 20-25% of their second-crop corn in the ground, compared to 40-45% of it planted at this time last year. With this mind, I believe South American "production" estimates may have peaked and will actually start work lower from here, especially is the weather turns drier during April-May time period. Argentine corn production may be more like 23-25 mmt versus the USDA's 27-mmt estimate. Argentine soy production could be sub-50 mmt versus the current USDA estimate of 53 mmt. I am also deeply concerned about unforeseen political and logistical problems that may arise in the coming months. Bottom line: I question how many bushels will actually make it out of the country, at what expense and in what type of time frame.

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on Mar 26, 2014

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Kevin is a leading expert in Agricultural marketing and analysis, he also produces an award-winning and world-recognized daily industry Ag wire called "The Van Trump Report." With over 20...
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