By John DePutter & Dave Milne – May 20, 2020
“USDA slightly lowered its (2019-20) forecast for South American soybean production. Dry weather has reduced yield potential of the crop, especially in southern Brazil and northern Argentina.”Feedstuffs, May 13, 2020
What it means:
Even with this month’s downgrade, there have been no real surprises from South America this year. The continent produced a record volume – as was widely expected.
Typically, US market attention starts to shift to South American production prospects almost immediately after the North American crop is in the bin in October and November. Interest gradually increases and peaks in the late December-February period, when crops from the continent’s two largest producers – Brazil and Argentina – go through their most weather-sensitive stages of development.
In most years, there are weather scares in at least one of these two countries which are capable of lifting prices in Chicago.
Little market excitement
Even before the COVID-19 outbreak managed to steal all the headlines from early March onward, 2019-20 South American soybean production was doing little to generate much market excitement.
In fact, exactly a year ago, the USDA projected the Brazilian and Argentinian soybean crops at 123 million and 53 million tonnes respectively. We now see that these estimates were not far off the mark.
For Argentina, the forecast represented a relatively minor 2.3-million tonne decline from a year earlier, a deficit which would be more than offset by a projected 4-million increase for Brazil.
In a year in which US soybean production largely disappointed because of horrendous spring planting conditions (see graph below), any major production problems in South America had the potential to cause a stir. However, as fate would have it, there were never really any concerns.
By March, with harvesting underway in Brazil, the USDA projections were on their way up, with Brazil at 124.5 million tonnes and Argentina at 54 million. Dry weather at the tail end of the growing season in both countries did take a bit off the top. However, taken together, this month’s estimates of 124 million and 51 million tonnes are just 1 million below where the USDA placed its original (May 2019) combined forecast.
Meanwhile, it is far too late now to expect much deviation in what Brazil and Argentina will ultimately produce; their crops will mostly be what the USDA says they will be.
Looking ahead to 2020-21
So, if the USDA was largely correct in its first 2019-20 soybean production forecasts for Brazil and Argentina, what is it saying about the next harvest, due in March-April-May (the 2020-21 marketing year)?
Argentinian production is expected to remain relatively steady at 53.5 million tonnes, but Brazilian output is seen rising to a new record of 131 million. This is mainly due to an expected 4% increase in planted area and a return to more typical weather in the southern production regions, where dryness was worst this past growing season.
If the USDA is right about its 2020 US soybean production forecast – up 586 million bu from a year ago to 4.125 billion bu – the expected bigger crops in Brazil and Argentina could help push 2020-21 global soybean output 8% higher, to 362.8 million tonnes.
Given the size of that potential increase, soybean growers in Canada and the US may want to track South American production prospects even more closely than usual this fall and winter. You’d better hope the crops in Brazil and Argentina don’t get that big.
Markets have many moving parts. A wide variety of long-term implications could come into play. Just remember, there is the distinct possibility of a very large supply coming from the fields of South America 9 to 12 months from now.
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