Corn and soybean production was supposed to rebound in South America this year after drought claimed crops in both Brazil and Argentina last year, but the situation has grown far worse in Argentina, limiting recovery in tight global supplies.
The effects are slightly different by crop. South American corn production may be lower this year, but global stocks-to-use (SU) is still seen rising from last year, which was originally expected. Although the continent’s exporters will grow more soybeans this year than last, global SU is set to fall.
This month is the second in a row where the U.S. Department of Agriculture’s crop estimates for Argentina came in below trade expectations, but Wednesday’s results were far more shocking than last month’s.
The agency slashed Argentina’s 2022-23 soybean crop to 33 million tonnes from 41 million last month, well below the average trade guess of 36.65 million. That cut of nearly 20% is USDA’s largest monthly reduction for Argentina’s soybeans since before 2009, perhaps ever.
USDA chopped Argentina’s corn harvest to 40 million tonnes from 47 million last month, below the trade guess of 43.4 million. Argentina is the top exporter of soybean products and is a major corn exporter, but it is caught up in its worst drought in about six decades.
Although USDA on Wednesday made more aggressive reductions than expected, other agencies and analysts have already been discussing similarly small harvest sizes.
These losses would be historic for Argentina, but there is a chance the harvests shrink even further as hot and dry weather remain in near-term forecasts. As of now, USDA’s Argentina soy crop estimate is 35% below the agency’s original peg of 51 million tonnes.
In 2009 and 2018, both terrible drought years, final soy production landed 33% and 34%, respectively, below USDA’s original outlook.
USDA’s Argentina corn number is down 27% from its initial forecast, compared with initial-final losses of 34% in 2009 and 20% in 2018. But tonnage-wise, this year’s corn shortfall is worse, already down 15 million tonnes from initial ideas. Initial-final corn losses in 2009 and 2018 both totaled 8 million tonnes.
When comparing past crop years, it is helpful to remember that Argentina’s harvested soybean area is slightly weaker now versus 2009, but corn area has more than doubled since then.
WEAK REBOUND
The 2022-23 marketing year was originally set to feature huge rebounds in South American corn and soybean production, but Argentina’s losses have changed the story, especially for corn. Combined, Brazil and Argentina are now set to produce 0.5 million tonnes (0.3%) less corn in 2022-23 versus 2021-22 compared with USDA’s initial idea of a 15.5 million-tonne (9.4%) rise.
Smaller corn producer Paraguay’s crop is also seen falling in 2022-23, to 4.8 million tonnes from 5.5 million last year, against initial expectations for an increase.
Corn traders also need to keep an eye on Brazil, as its record 125 million-tonne crop projection is at risk due to late second-crop planting. No. 2 corn state Parana in the country’s south is planting corn at the slowest pace in more than 12 years and slower than in 2021, which turned into a disastrous season.
South American soybeans are still expected to outproduce last year, but by a lesser extent than originally thought. USDA pegs combined 2022-23 output in Argentina, Brazil and Paraguay at 196 million tonnes, up 18 million (10%) from last year, though they were originally slated to add 32 million tonnes (18%) this year.
The three-country soy crop would be slightly above the prior high of 195.3 million set in 2020-21.
But despite stronger year-on-year South American soy output, USDA’s latest estimates suggest 2022-23 global soybean SU at 18.5%, down from the prior year’s 19.2%. Last May, the 2022-23 ratio started at 18.2%, up from 16.4% expected at the time for 2021-22.
The corn narrative has not largely changed from last May, but again, that is pending Brazil's second corn harvest. World corn SU for 2022-23 at 22.3% is identical to the May 2022 forecast and up from 21.7% in 2021-22.
In the past five marketing years, global corn SU averaged 23.9% and soybean SU 19.9%. China has not been excluded in any of the above SU calculations.
Source - https://www.reuters.com
