EDITOR'S NOTE: This week's edition of Farm Management Friday is authored by Chris Ries, a private market analyst with Ries Ag Marketing. Based in the northeast Iowa town of Ryan, he can be contacted at [email protected]. Or by phone at 563-932-2646.
Expectations for Argentina's soy crop are rising after poor weather prevented corn planting in some of the country's most productive regions this year. The optimal window for planting early corn in Argentina ended in November, and farmers now need to decide whether to plant late corn or switch to soybeans.
Lower yield prospects for late planted corn and higher prices for soybeans are prompting more Argentine farmers to switch their corn acreage to beans. Mounting evidence of record South American soy production is hanging over the soy market like a wet blanket and may impact U.S. soybean demand sooner than some expect.
Farmers in Argentina plant an early corn crop and a late corn crop. Early corn is planted from September to early November and usually makes up about 70% of Argentina's corn area. A break in corn planting for most of November is needed to avoid extremely hot temperatures during the peak summer period, which is mid-January. Late corn planting usually resumes from late November to December, when corn will reach critical stages of development after the hottest time of the year has passed.
Wet weather caused widespread planting delays in November 2013
A dry Argentine winter and less than adequate spring rainfall delayed early corn planting as producers waited for increased soil moisture. Once better rainfall began in the second half of October, it didn't let up. Heavy rainfall caused widespread planting delays into early November, and at that point the ideal early planting period for corn had passed.~~~PAGE_BREAK_HERE~~~
As of early December, corn planting in Argentina was just 44% complete—about a month behind schedule.
Less corn, more soybeans being planted in Argentina for upcoming 2014 harvest
Corn planted in December has lower yield potential, and prices for the grain have been falling at a faster rate than soybean prices. Lower corn prices and higher input costs for the crop are making soybeans an attractive alternative for Argentine farmers who missed their window for planting corn.
In addition to fewer corn acres, Argentina's soybean area is expected to benefit from a smaller sunflower area, the country's fourth largest crop. Total sunflower acreage is expected to drop about 200,000 hectares to 1.45 million, the lowest level in the last three decades. Sunflower seed oil prices have fallen as production in Russia and Ukraine increased about 20% over last year's levels. And sunflower input costs have increased too, particularly for land.
Soybean acreage is also getting a boost from fewer sunflower plantings
The rise in input costs for producing sunflowers is squeezing margins to minimum levels and in some cases even leading to production losses. Higher prices and good results from last year's soybean harvest have lent additional support to soybean planting intentions this year.
As a result, Argentina's grain exchange, BACE, recently increased its estimate for this year's soybean area to 20.45 million hectares as lower acreage intentions for corn and sunflowers are expected to boost soy plantings. The USDA's attaché to Argentina similarly increased his estimate for the country's soy area to 20.50 million hectares at the end of November. With this larger area, the attaché to Argentina estimates that soybean production will be 57.50 MMT, which is 7.5% higher than USDA's estimate in November.
What would this larger South American soybean acreage mean for U.S. soybean prices?
The larger-than-expected soybean area will help moderate yield risks during the upcoming Southern Hemisphere summer, allowing foreign buyers to take a more relaxed stance on U.S. purchases this winter. Increasing confidence in a record-size soybean crop in South America in 2014 lessens the need to stockpile high-priced U.S. supplies this year.~~~PAGE_BREAK_HERE~~~
Chicago soybean futures continue to be underpinned by USDA's historically tight carryover outlook for next year, giving rise to concerns that the current high pace of export sales could lead to even smaller ending stocks than the government projects. Year-to-date soybean sales have already reached 94% of USDA's 1.45 billion bushel marketing year estimate. The average sales pace for this period is just 65%.
Last year's record South American soybean crop could easily be surpassed in 2014
But soybean export commitments in recent years have tended to be increasingly front-end loaded, making comparing the current sales versus the average pace deceiving. This has occurred as a result of reliably larger South American soybean crops year after year.
And last year's record South American crop could easily be surpassed this year. In November the USDA forecast South American production 7% or 360 million bushels higher than last year's total. Taking into account the latest estimates from USDA's post in Argentina, this year's total soybean production for South America may be closer to 5.70 billion bushels, 510 million bushels higher than last year.
Prices for soybeans in Brazil's largest soybean producing state are about five times the price for corn
To make matters worse, Brazil could also see soybean planting intentions increase at the expense of corn. Prices for soybeans in Mato Grosso, the largest soybean producing state in Brazil, are currently about five times that of corn. Depending on how prices perform in the early part of 2014, farmers in Brazil could choose to plant a second crop of soybeans.
Farmers can plant two crops per year in Brazil thanks to the favorable climate. Apart from yielding significantly less, the soy-on-soy crop would carry increased disease and pest risks but may turn out to be the most economical choice.
Of course, weather in South America over the next few months will play the largest role in determining 2014 soy supplies, but increasing acreage will limit overall production risks and help ease end-user anxiety over soybean availability this coming year.