Soy, Corn, & Timing: 2024/25 “Way Too Early” S. Am Outlook
This is the “way too early” prediction because major production areas will shift from dry to wet seasons between October and November. Brazil has been receiving less rain seasonally for decades, emphasizing the importance of the transition's “timing.”
Critical transition is Oct/Nov period
Soybeans
Last year, AiQ predicted total South American production would be 232 mmt (November 2, 2023 blog here).
Selling soybeans against corn is going to be a popular thematic
This year, AiQ will start 4% higher at 240.2 mmt. The largest increases are in Paraguay and Argentina, up 18% and 17%, respectively. In Argentina, the soybean area will increase by 1.8 M ha to 18.6, while some private estimates are as high as 19 M.
Brazil's production will be down 1.5% as the growth rate in trendline yield moderates. The planted area will be 4% higher, the smallest acreage growth in over a decade. We are assuming a yield slightly lower than trend yield.
Last year’s production fell short by 7% due to stress in Brazil’s Center-West and flooding in the South. Argentine farmers took advantage of the heavy December rains to sow late corn areas. Paraguay experienced one of its hottest summers on record. Local reporting agencies and the USDA are still divided on last year’s production.
The Euro forecast is trending wetter for Paraguay, but the GFS is stays dry
Argentina’s sunflower production will set another record at 5.5 mmt if the weather cooperates. The La Niña that devastated production two years ago encouraged farmers in the Nucleo zone to switch to sunflowers. They sowed a record 2.45 M ha, and this year, we expect that number could reach 2.6 M ha. Prices are rising, and sunflowers offer an attractive alternative to higher-cost corn.
Corn
AiQ has not been aggressive with these changes.
Brazil’s lower 10% potential will stand out, but Argentina is the wild card. Farmers affected by the leafhopper will move away from corn. The dry western Pampas are incentivizing them to reduce risk with alternative crops. There are private groups as low as 41 to 42 mmt to start.
The main takeaway is that the margin for error in grain production is minimal. Brazil’s domestic demand will be another record. The country will produce more than 7 billion liters of corn ethanol, sugar production is falling rapidly, and Brazil’s livestock industry is making up for limited growth in North America. Any weather hiccups will push corn demand to the USA immediately.
Timing Is the Most Important Thing
Brazil receives less rain than a decade ago and significantly less than two or three decades ago. The chart below shows Mato Grosso's 1,000—and 500-day rolling averages for precipitation.
Brazil's rainfall patterns are changing.
Here is the nuance. Even as Mato Grosso receives less rain, it has not had as variable an impact as other states. Last year was the first year Mato Grosso had a real problem. An argument can be made that Mato Grosso’s growth increases this risk commensurately. Let’s come back to this.
Another key point is that other states have a greater impact on marginal production because they are more prone to floods and droughts. Below are two charts. One is Parana’s 500-day rolling average, and the other is a table displaying Brazil’s national production and the state of Rio Grande do Sul over the last decade.
This chart may actually be more concerning than Mato Grosso
The 2022 La Niña devastated the entire center of the continent.
The only real lousy year was 2022, with a historic drought in the country’s most southern state. We highlight Parana because it is a sizable producer and sits between the tropical north and the seasonal southern states. Parana accounts for 15% of corn and soy production.
There are two takeaways:
1) Drought in the north of the country is a greater risk than in previous years due to the growth in production and the long-term trend of less daily precipitation year after year.
2) Brazil’s production has not suffered from the decline in rainfall, emphasizing the timing of the transition from dry to wet season. Producers have also learned how to manage the tighter planting windows.
Headlines Will be Bullish, Don’t Get Suckered Again
Private forecasters and AI-data-driven-ag-tech fell into the trap last year. They started too low, cut too early, and never recovered. Brazil’s private agencies that told their producers not to sell were easy to explain. others not so much.
Here is Octopusbot’s April 2024 update: they already cut corn production below 110 mmt. This AI company gave itself a 96.2% accuracy rating (read about it here). It reminds us of another company that was highly accurate according to itself.
There is no silver bullet for predicting crop production.
Brazil’s drought is severe, and it is both record hot and record dry. But it is the time of year when it typically doesn’t rain much. Farmers have gotten good at waiting as long as necessary and then taking advantage of when the rains arrive. Betting against Brazil’s farmers has been a losing bet.
Getting overly bullish now risks the same issues as a year ago. Permabulls are great on social media, less well known for the performance of their clients.
Create an image of leading ag permabulls to the slaughterhouse...
Very cool graphic, not useful for ag!
AiQ’s models will publish South American production figures in October when weather forecasts are available. We will continue to provide weekly updates on global weather risks. Sign up for free at www.archaiq.ai.
Behind every comment and visualization is a whole lot of data.
ArchaiQ (AiQ) is a partner of Easy Newz. This is not trading or investment advice. Trading Futures is high-risk; please consult with a professional. AiQ receives input from partners and experts worldwide, whose opinions may be reflected in the figures above.
