What does the South American Market Tell us About Price?

  • Brazil and Argentina have been the largest exporters of soybeans and soybean meal to the world for the past 20 years
  • These countries have also become the world’s largest exporters of corn for the past two years
  • Given its growing influence on global markets, South American production needs to be factored into all analyses of global supply and grain prices
  • To start the 2020/21 growing season, South American crop health has been hindered by delayed planting and dry weather conditions – but ample time remains for corn and beans to recover

December 16, 2020. As South American countries have grown to dominate the corn and soybean export market in the past 20 years, their influence on price has amplified. In turn, vigilant tracking of the Brazilian and Argentine crop markets gives grain buyers, advisors, brokers, and growers confidence to sell grain ahead of market movements. This report offers a close look at those historical trends, as well as a preview – harnessing remote sensing technology and weather modeling –  of the region’s current growing season.

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A growing influence. The market response to changing South American supply has become more acute in recent years. Joel Karlin, a DTN contributing analyst points out that both countries have a far greater impact on soybean futures than in the past. “The correlation between the production change and the price change has increased from 29.3% to 45.9%,” he wrote at the end of 2019.

The same fluctuations apply to corn. From January of 2018 to April of 2018, the United States Department of Agriculture (USDA) revised its South American corn production forecasts down 12M tons. May corn futures rose 34 cents over the same timeframe, from $3.57 to $3.91. 

Numerous economic, social, and political events drive commodity price, but South America’s production has seen a more significant tie in through recent years.

Corn, an upward trajectory. Brazil and Argentina have seen their corn yields skyrocket 72% and 49% with continued ingenuity in seed technology and land management over the past two decades, growing from 3.2 metric tons per hectare (mt/ha) to 5.51 mt/ha and 5.45 mt/ha to 8.1 mt/ha. (Compared to the U.S. yield of 10.51 mt/ha and average world yield of 5.78 mt/ha.). 

At the same time, for the past two growing seasons, corn exports from South America have been 50% larger than U.S. corn exports. And this is all without matching domestic averages; if Brazil’s average corn yields per acre were to reach U.S. levels, Brazil’s corn supply would double.

This season, dry conditions in southern Brazil have already impacted yield potential for full-season corn, with downstream impacts on the planting of the safrinha crop, Brazil’s second corn crop planted after soybeans. Since those early conditions, precipitation in Brazil has improved but remains spotty – atypical from the country’s past widespread rainy beginnings to the season. The Brazilian state of Mato Grosso, for example, has received only 20 to 40 percent of its normal rainfall over the last two months.

Argentina is also off to a slower than normal start to the season, thanks to the dry conditions. Corn planting in the country is behind the average, while soybean planting is slightly behind (but catching up). 

Soybeans, the premier crop. Commanding 52% of the world’s soybean production last year, South America generates roughly 50% more beans than the United States. Brazil alone in recent years has produced as much soybeans as U.S. growers. Combined, Brazil and Argentina represent 64% of the global soybean export market.

In the beginning of the season, weather will have an outsized impact on Brazilian and Argentine corn, rather than soybeans. This is due to crop biology: corn has one chance to successfully pollinate and produce grain, while soybeans can delay further pod setting if dry or cool conditions strike. So, while the soybean crop is currently behind, it could prove resilient over the coming months; there are many days left to get back on the curve.

“The south of Brazil was the region most impacted by irregular rains, as we tried to finish planting soybeans,” said Daniel Manfredini, an agronomist working with Indigo in South America, based out of Brazil. “Despite this though, soybean planting on the whole seems to have grown compared to last season.” 

Looking ahead, La Niña looms. La Niña, a weather pattern that typically reduces precipitation in parts of South America, is expected to be a major factor this season – especially across southern Brazil and northeastern Argentina. Since 1950, 23 La Niña events have been observed. Climate models tell us that this season will be one of the eight strongest La Niña events recorded, according to Indigo’s in-house meteorologist Julia Lange, Ph.D. 

In Argentina, seasons with La Niña are almost guaranteed to see lower yields compared to the previous year, according to an analysis of the 11 most recent La Niña events. Argentine corn was worse in ten of those events; Argentine soybeans, nine. The impact in Brazil has not been as extensive, but is still significant, with five of those 11 most recent La Niña events producing worse soybean and corn yields compared to the previous year. 

Market eyes on South America. Going into its fourth year of detailed, state-by-state analysis of the South America growing season, Indigo will provide real-time insights as the crop matures through 2021. Follow along as we track South American productions and anticipate corresponding market impacts – exclusive access to the reports will be sent out monthly. 

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