North American crops are in the bin after a mostly warm and dry combining season, and market prices are near harvest lows.
That means our eyes now turn to South America, where the world’s next big crops are being seeded, to look for issues that might spark a price rebound.
The prices of many major crops are near the low end of what was an elevated trading range that began at the end of 2020.
Back then, Brazil had had a terrible corn crop, North America’s crops were less than what was hoped and China was buying much more grain than usual to make up for its own disappointing corn crop. China was also building stocks to ensure a good supply while COVID was raging.
At the same time, La Nina was building and would bedevil parts of South America for three years. Across the Pacific, palm oil production was falling short of demand.
Then, Russia invaded Ukraine in 2022, setting off another grain rally.
All these factors together contributed to strong crop prices for about three years, from the fall of 2020 to the summer of 2023.
But for several months now prices have been falling amidst adequate production in the Northern Hemisphere, even with hot weather scares, and reduced panic about the food implications of Russia’s war on Ukraine.
The question is, can prices hold near the bottom of the elevated 2021-23 trading range or will they drop down to the lower range that was common in the 2015-20 period?
For oilseeds, including canola, much will depend on South America’s crops now being seeded.
The U.S. Department of Agriculture’s October monthly supply and demand report forecasts South American soybean production for 2023-24 totalling 221 million tonnes.
That would be up from last year’s 190 million, which was depressed by the La Nina drought in Argentina, which cut its soy crop in half.
Breaking it down by country, the forecast for 2023-24 is Brazil at 163 million tonnes, up from 156 million last year, Argentina at 48 million, up from 25 million, and Paraguay at 10 million, up from nine million.
Last year’s La Nina drought affected Argentina and southern Brazil, but good yields in central Brazil partly offset the damage in the southern part of that country.
This year we are into an El Nino, which tends to bring better moisture to Argentina and southern Brazil.
Indeed, southern Brazil got so much rain recently it damaged the wheat crop that grows there.
But El Nino, particularly a strong one like the current event, can also deliver drier weather to central Brazil.
Brazil’s central and northern soy-growing regions are increasingly important to the country’s total production.
Acreage in those regions, which are mostly cerrado, or tropical savannah, in climate and geography, is growing faster than in the south.
Cerrado soy production now accounts for more than half of the country’s soybean production. The state of Mato Grosso alone produces half of the cerrado region’s crop, or about a quarter of the nation’s production.
October marks the transition from the dry to the wet season. In September and early October rain was disappointingly spotty in the cerrado region. It was also unusually hot with temperature highs in the mid 40s C.
Rain was forecast for the end of October and into the first week of November in the cerrado, so that might mark the full transition to the rainy season.
However, long-term climate models, such as the U.S. Weather Service’s Climate Forecast System, version 2 (CFSv2), show drier than normal conditions in central Brazil in November and December.
If that proves true, it could make markets nervous.
Of course, El Nino does not guarantee a poor soybean crop in the cerrado. For example, in the weak El Nino of 2018-19, yields matched the normal trend.
However, the stronger El Nino of 2014-16 had a bigger impact. In 2015, total Brazilian soy production fell to 96.5 million from 97.2 million the previous year. That isn’t a big drop but is significant, considering that in most years Brazil easily tops the previous year’s production because of ever increasing seeded acres.
That weak Brazilian crop helped lift global soybean futures in the spring of 2016 to the highest level in that overall weak period of 2015-20.
Another factor to keep an eye on this year is Argentina’s weather. It had such a small soybean crop last year that its huge crushing industry has little product to process, which has elevated global soy meal prices.
However, Argentina’s soy yields should bounce back this year if El Nino rain comes through as predicted. The CFSv2 climate model forecasts good moisture in Argentina in December to March.
Indeed, if there is excellent moisture, production could be stronger than currently expected, and that could offset things if production does not go well in central Brazil.
Source: The Western Producer