ANALYSIS: North and South America soybean crops face weather challenge
On Thursday, the USDA released its latest forecast for this year’s soybean crops, with cuts to US ending stocks filtering through to the global picture to hammer the world carryout figure next year to a four-year low.
That cut was driven by lower US beginning stocks and a worsening yield picture in North America.
But there are now signs that even that figure could be too high given initial adverse weather conditions in all three main exporting nations.
Key growing regions in the US are facing snow and freezing temperatures that could further plague a crop that has already suffered from floods in May - the ideal planting season.
And it's the western corn belt where the weather is worst.
“The forecast looks extremely bad for North Dakota. Last year, many farmers combined soybeans above the ground because we had snow. This forecast is for something much worse,” said Nancy Johnson, executive director of the North Dakota Soybean Growers Association.
“The weather is definitely supporting us, with snow falling over the Dakotas last night, and due to continue to fall for the next two days. Along with the snow, there are some record low temperatures forecast for the western corn belt, which should effectively finish the growing season, and start the “how much did we lose?” season,” said Charlie Sernatinger, a broker with ED&F Man.
That dynamic has seen some traders start to consider a scenario where the USDA may apply further cuts to the yield as the harvest rolls in.
According to a poll by newswires, analysts' own estimates for the crop are around 1% lower than where they anticipated the USDA figures to come in at, with analysts Brock Associates and Soybean and Corn Advisor the most pessimistic on their outlooks at 46 bpa versus the USDA’s estimate of 47 bpa.
If that scenario plays out, it could wipe a further 2 million mt, or 2%, off US supply.
“We think this (47 bpa estimate) is too high and this is just the start of the cuts,” said one market participant on Thursday, explaining that the USDA is typically conservative with its yield downgrades in the October report, only applying broader cuts in poor crop years as the harvest rolls in.
With just 14% of the nationwide harvest complete versus a five-year average of 34% - and with most progress made in states that were not the most impacted by floods earlier this year – there may be scope for lower yields.
South America
Meanwhile, in Brazil arid soil conditions have meant that farmers there have got off to the slowest sowing start in six years.
On Thursday, the USDA kept its own estimate for the world's biggest exporting nations steady at 123 million mt.
But what is notable is that figure is around 3 million mt higher than estimates by Brazil’s own food statistics agency Conab.
And with estimates at this stage of the planting season largely relying on trendline yields multiplied by planting intentions, it is likely the survey conducted by Conab of 900 growers is a more reliable projection.
And that’s before you get into yield estimates, which could dip below trendlines due to late plantings that could see less sunlight hit the crop.
According to consultants AgRural just 3.1% of the crop is in the ground – around half the typical sowing rates.
And further south, Argentine farmers won’t start planting for at least a month, but soil conditions there are causing minor delays to corn planting, which is running 2.7 points behind last year’s campaign.
Ultimately, seasoned observers will cite the adage that “you don’t look at Latin American weather until after Thanksgiving (late November)” for an indication of the Latin American crop.
But in just five months the USDA’s estimate of global ending stocks has fallen from an initial estimate of 113 million mt in May to just 95 million mt in October- a chunky 14%.
As such analysts will be keenly watching Brazil’s weather to gauge whether those stocks could fall even lower.
“The rains need to get more regular as soon as possible," AgRural said in a note to clients.