It ain’t over ‘til it’s over.
The market had already begun moving on from Brazil’s soybean harvest as it was nearly 95% complete. Rio Grande do Sul, the second largest state for soybean production, was the last major area to wrap up harvest. RGDS was about to have one of their best seasons in a long time.
Then the rains came.
With roughly 25% of the state remaining to be harvested, massive rains have begun causing apocalyptic type damage to cities and farms, with a reported death toll at 80 people and rising. We see images of what appears to be lakes where an unharvested soybean field sat ready to be cut just days earlier. Grain storage facilities also are submerged. As many as 10 meatpacking plants have suspended operations.
RGDS historically averages as much as 6 inches of rain in the April/early May time frame. So far, more than 20 inches of rain has fallen in that same amount of time – with another 10 inches or more expected in some areas into next week. It is reportedly the worst flooding in 85 years!
Yield damage is prevalent across the entire state but weighing slightly more to the western side where it shares a border with Argentina. It is important to remember that RGDS experienced extreme drought last season due to La Niña. RGDS was finally going to make a comeback with an expected production of 21.8 MMT. As much as 6 MMT is sitting in the field waiting for conditions to dry out.
How will losses impact market?
Nobody really knows for sure what the damage will be, but they agree there will be something. Some estimates are calling for anywhere between 2- to 5-MMT loss. Fields that can be harvested likely will have quality issues.
We were originally skeptical that such a loss would capture the attention of the market the way it has. After all, Mato Grosso lost over 10 MMT and neither the market or USDA seemed to care. The market was expecting a cut to soybean production in the May 10 report this Friday, even without taking the flooding into account. If USDA makes no significant cuts on Friday, they will have solidified themselves as a completely irrelevant government agency.
Figure 1: Canoas, RGDS
While export loading at ports doesn’t seem to be all that disrupted, many roads are shut off, temporarily paralyzing the supply chain. There is not much to do now but wait for it to pass. It looks like rainfall will remain active through the middle of next week.
While the spotlight is on soybean damage in RGDS, the state is also a large producer of first crop corn, rice and wheat. The state produces:
roughly 5 MMT of corn, of which some 17%, or 30 million bushels, is still unharvested
4.3 MMT of wheat, which represents 44% of Brazil’s production
7.4 MMT of rice, which represents 75% of Brazil’s production.
South American corn crops shrink
The forecast for second crop corn, the safrinha, in Brazil is virtually identical to last week, with no visible precipitation scheduled. The rainy season has come to an end with some areas already approaching 30 days without rain. While Brazil’s corn crop size likely will be determined by planted acres, Parana will proportionately experience the highest productivity loss. Parana is expected to lose more than 3 MMT.
While the rainy season coming to an end in late April/early May is not all that unusual, what is unusual is their summer heat continues to linger despite entering their fall season. Heat levels remain elevated at 5 to 10 degrees above average for most of the safrinha growing belt. Cuiaba, the capital of Mato Grosso, which has an average temperature of 91 F, has been surpassing 100 F.
Corn does not perform well with such extreme temperatures, especially during pollination. Later safrinha corn will be stressed. This will apply pressure on the USDA to reduce their corn production estimates. Harvest will begin on second crop corn in the next two weeks.
Figure 2: HEAT WAVE CONTINUES IN BRAZIL
Argentina continues to reduce its crop size. The Buenos Aires Grain Exchange has now lowered estimates down to 46.5 MMT. It is notable that early season estimates called for over 56 MMT of corn from Argentina, so they have lost a whopping 10 MMT so far, primarily due to insect pressure. Much of the heavy rainfall in Southern Brazil has fallen across the border into Argentina, slowing up their harvest. They are roughly 11% behind their five-year average. The Argentina corn harvest is a slow process that will run clear through the end of August.
This crop season went from being a record season to falling back into sixth place.
Matthew Kruse is President of Commstock Investments. Subscribe to their report at www.commstock.com.
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Source link : https://www.farmprogress.com/commentary/will-sa-weather-disrupt-market-
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Publish date : 2024-05-08 03:00:00
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