Jacqueline Holland is speaking at the upcoming Farm Futures Business Summit in Coralville, Iowa, January 19-20, 2023. Learn more and register here.
Around this time last year, many of you caught me with my hand in the cookie jar, so to speak. Back when I was writing the South American crop outlook (November 2021), Brazil’s corn and soybean crops had not yet been impacted by the La Niña-induced drought, so I figured I’d be safe sticking with the record forecasts at that time .
But 2023 is not the year to repeat that mistake! Market volatility from 2022 will likely carry over into 2023, but that doesn’t mean we can’t make some educated guesses about Brazil’s corn and soybean crops. And I’m bold enough to say that we (or in this case I) can make more logical predictions than last year!
Brazil’s forecasts promise positive record harvests
It should come as no surprise that market observers have been reluctant to bet on a record soybean crop in Brazil this year. Around this time last year, soybean prices began a dizzying surge on drought concerns in Brazil, eventually driving some end users out of the market as supplies dwindled.
The December 2022 Global Agricultural Supply and Demand Estimates report forecast Brazil’s 2022-23 soybean crop at a record 5.58 billion bushels, 9% above the previous peak of 5.13 billion bushels produced in 2020-21. The USDA currently forecasts Brazil’s soybean exports for 2022/23 at 3.29 billion bushels. That volume is off the 2019-20 record high of 3.39 billion bushels, though not by much.
Brazil is the world’s largest soybean exporter and is expected to produce 39% of the world soybean crop in 2022/23. The USDA revised Brazil’s soybean crop down 625 million bushels last year after the La Niña-induced drought, eliminating so many bushels in the global soy pipeline that global soybean consumption volume fell for the first time since 2008.
For corn, the USDA left Brazilian corn production and exports for the 2022-23 season in December 2022 unchanged from previous forecasts at 4.96 billion, or 26% of global corn exports through the end of the 2022-23 marketing year.
What are the chances that these numbers will remain constant in the coming months? It’s no secret that a third straight La Niña season is looming, meaning an increased risk of drought in Brazil later in the growing season.
But so far, Brazil’s soybean crop has been grown with few weather problems. Brazilian agriculture consultancy AgRural reported that 95% of Brazil’s soybean crop had been successfully planted by mid-December.
In fact, favorable rainfall prospects through December could see Brazil’s soybean crop developing favorably in early 2023. Brazil’s midwest and southeast — the country’s two largest growing areas — saw significant rainfall through early December.
Temperatures in Brazil usually heat up in December, but that was not the case this year. Even with a third consecutive La Niña forecast for this winter, temperatures remained moderate to cooler than usual, giving young crops more of a fighting chance than this time last year.
But does Argentina matter more?
However, Argentina wasn’t so lucky with the weather this year. The Pamapas grain belt was set on fire in last year’s drought and is on course for a second season of parched weather. The big question now is – how much will Argentina’s production and potential losses matter to global markets?
Argentina is the world’s largest exporter of soybean meal and soybean oil and the third largest exporter of corn. The USDA expects Argentina to ship 23% of the world’s exportable corn shipments in 2022/23. The country’s soybean exports for the current marketing year account for barely 5% of world total exports, although current forecasts suggest that its soybean supplies will account for 35% of world trade.
Argentina’s wheat harvest has already been decimated by drought. Early in the growing season, Argentina’s soybean crop showed signs of drought damage, although to what extent is not yet certain. Weather forecasts have not been favorable to pull Argentina’s Pampas grain region out of drought in late December 2022, making crop damage more likely in Argentina than in Brazil at this time.
Another depreciation of Argentina’s currency in December sparked a spate of export sales of soybeans by farmers who competed directly with freshly harvested US supplies in the world market as the Argentine government sought new sources of government revenue.
Although Argentina may not have the manufacturing power of US and Brazilian producers this year, the speed at which its farmers can ship their produce out to sea will rival US supplies in the weeks leading up to the Brazilian harvest. However, global corn and soybean supplies remain tight enough that any loss of corn and soybean production in Argentina will undercut US prices
China is chasing the best deal
World’s Leading Buyer of Soybeans China’s buying outlook started the US export season last fall in a prime buying position for US growers. As of mid-December 2022, China had 54% more outstanding export sales on its books with US soybean exporters than a year earlier. But at that point, physical volumes of U.S. soybeans shipped to China were down 4% year over year.
Chinese soybean buyers had more incentive to wait and see how South America’s harvests drag out towards the end of 2022. The pork demand outlook for China’s Lunar New Year holiday is expected to be weaker than expected as many Chinese consumers continue to self-isolate amid rising COVID-19 rates, despite China broadly easing many of its toughest pandemic measures in December.
As a result, China’s live pig futures plummeted in December as consumers balked at higher prices. Soybean crush margins, which finally returned to profitability in October 2022 after trading at a loss for six months, turned negative again.
China’s soybean import volumes fell in November due to Mississippi shipping problems — although US soybean export earnings hit new highs amid the chaos. Constrained shipments from the US coupled with rising soybean prices in the fourth quarter of 2022 kept many Chinese buyers waiting to pull the trigger for larger soybean volumes.
The USDA kept China’s import volumes of corn (709mn bu.) and soybeans (3.6bn bu.) unchanged in the December 2022 WASDE, suggesting that there was insufficient market data at the time to warrant a revision justify. Also, several big daily export announcements from the USDA suggest that China will ensure adequate supplies in case of another Brazilian soybean shortage.
With domestic demand signals pointing to a holding pattern for now, China appears to be hedging its bets as the world awaits the fate of Brazil’s soybean crop. China eased some of its tariffs in early 2022 to increase the volume of Brazilian corn it will import in the 2022/23 growing season, paving the way for more corn and soybean trade volumes to be exchanged between Brazil and China than in China USA and China.
Chances of winning for US farmers?
But there are no guarantees of market certainty in 2023. Growing concerns of a global recession rang as central banks in the world’s leading economies (most recently the US Federal Reserve, Bank of England and European Central Bank) continued to hike interest rates an additional concern for commodity demand in calendar year 2023 and could keep global corn and soybean prices under control if a potential downturn is severe enough.
With Argentina’s quick December soybean sales likely to meet China’s demand for affordable soybeans ahead of the Brazilian harvest, US soybean farmers may be forced to sell any remaining 2022 crops closer to home this year. It’s not a bad option — domestic demand for soybeans remains strong into the new year — but fewer international buyers could have a significant price impact on US soybeans down the road.
While Argentina’s crops could face an uphill battle this growing season, there is still plenty of time to make or break the Brazilian soybean crop and even the safrinha corn crop (second corn crop) that will be planted immediately after the soybean crop in the coming months . Any South American dip — or blessing — in January is likely to result in significant price volatility in the US soybean futures markets.
If Brazil’s soybean crop experiences another drought growing season in the coming months, soybean markets are likely to return to a situation similar to last year’s – high prices and reduced consumption rates.
Global supply remains tight enough that any sort of crop damage in Brazil or additional heat stress in Argentina in the coming months is likely to trigger some price gains and possibly bigger export sales this spring. But farmers should also be prepared for the possibility of a big Brazilian soybean crop — and possibly a record corn crop — this year, too, and look for local profit opportunities.
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