It is hot in Brazil, so hot that pop star Taylor Swift had to postpone concerts in Rio de Janeiro last week, after a first concert where the heat might have contributed to one fan’s death.
This event, that occurred as the heat index (accounting for humidity) in the city approached a staggering 58.5 C, dominated entertainment news last week, but of course had no impact on agricultural markets.
But it reminded me to look into the state of the country’s massive soybean crop, the health of which affects global oilseed markets.
I last visited the topic a few weeks back when I looked at the potential impact of the current El Nino in the Pacific on crops in South America.
Brazil is a vast country. Linking the weather in coastal Rio to farmland in the interior is like hearing an uninformed foreigner ask whether rain in Toronto helped the canola crop in Saskatchewan.
But in this case, much of Brazil is suffering under scorching heat.
The El Nino is also contributing to weather systems that dump excessive rain in southern growing regions but leave central Brazil dry.
Mato Grosso, the huge central state that produces on average 26 percent of Brazil’s soybeans, has been hot and dry in the past month as soybeans were planted.
In recent days, the temperature in Cuiabá, the state’s capital city, has reached the mid-to-high 30s C. Large parts of the state have had less than 50 percent of normal rainfall in November. Other central states are in a similar situation. The heat is increasing evaporation, leaving soil dry.
Meanwhile, in the south, which last year suffered drought, the state of Rio Grande do Sul that produces 14 percent of soybeans and Parana immediately north, that produces 15 percent, have 150 to 200 percent of average rainfall in November.
Analysts believe Brazilian farmers will increase seeded area by almost three percent to 113 million acres.
But with the troubles in Mato Grosso and elsewhere, production is expected to rise a little slower than planting area.
The United States Department of Agriculture monthly supply and demand forecast for November put Brazil’s soybean crop at 162 million tonnes, up from 158 million last year, an increase of 2.5 percent.
Agribusiness consultancy Agroconsult last week forecast the crop at 161.7 million tonnes.
Another consultancy, Safras and Mercado, last week lowered its forecast to 161.38 million tonnes, down from 163.25 million previously and another forecaster, Hedgepoint, cut its projection to 160.1 million tonnes from 162.3 million.
The dry area got rain last week, mostly in states immediately north of Parana, but little fell in Mato Grosso. Dry weather is expected this week.
Most medium-term forecast models show the dry-centre, wet-south pattern will continue in December.
Michael Cordonnier of Soybean and Corn Advisor, an influential observer of Brazil’s crops, reports some Mato Grosso farmers were considering tearing up fields with uneven soybean germination and reseeding with cotton, which could slightly trim the overall soybean planted area.
So there is potential for further trimming of Brazil’s soybean production forecasts.
But unlike the mixed story in Brazil, the early crop progress in Argentina is all good.
Last year’s drought is over. The Buenos Aires Grain Exchange forecasts 42.7 million acres of soybeans, up from about 40 million last year. A little over a third of the crop has been seeded.
With good weather, the exchange forecasts 50 million tonnes of soybeans, up from 21 million in last year’s drought-reduced crop. If the weather remains favourable, the potential is for forecasts to creep up, perhaps offsetting declines in Brazil.
The biggest uncertainty in Argentina this year is the political and economic situation. The country elected a new president a few weeks ago, Javier Milei, a flamboyant libertarian who promises to take a radically different approach to government.
He promised to slash government spending and “take a chainsaw” to the inflation-wracked, ailing economy that has long suffered under state control.
His promises include ending the export tax on crops and axing policies that kept the local currency artificially high.
Farmers are doing little advance selling of their crops, waiting to see how quickly Milei can put his policies in place.
The changes could boost farm exports and lift farmers’ incomes, at least in peso terms. But some also fear that if Milei is reckless, he could plunge the country into chaos.
Taken together, South American soybean current production prospects are enough to keep crop traders confident, but that could change if things get much worse in central Brazil.
Oilseeds are pressured by weakness in crude oil markets.
Also, a U.S. court overturned a government effort to make small refiners use more renewable diesel so that could trim the amount of vegetable oil going into motor fuel.
Source: The Western Producer