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April 27, 2016

2016/17 South American Soybean Crop could face Hurdles

The 2015/16 soybean crop in South America is ended on a very poor note and I thought it would be a good time to look ahead to the 2016/17 crop in South America. Below is some "food for thought" concerning the next growing season in South America.

Less full-season soybean acreage in southern Brazil - I think farmers in southern Brazil will plant more full-season corn to take advantage of the very strong domestic corn prices. For the last decade, farmers in southern Brazil have been reducing their full-season corn acreage in favor of more soybeans while shifting the corn to the safrinha crop. That trend could be reversed this upcoming growing season due to shortage of corn in southern Brazil and the very strong domestic corn prices. This in turn, could cut into the full-season soybean acreage in the region.

Farmers in Parana will also be prohibited from planting safrinha soybeans starting with the 2016/17 growing season. During this past growing season, farmers in Parana planted an estimated 173,000 hectares of safrinha soybeans.

Slower soybean expansion in central Brazil - If soybean prices continue to show strength, farmers in central Brazil will continue to expand their soybean acreage, but at a slower pace than in recent years, in part due to the Brazilian currency and the Brazilian economy. With the increasing possibility of a new president in Brazil, the Brazilian currency has strengthen, which is not good news for Brazilian farmers because when the currency is strong, they put less money in their pocket for every sack of soybeans they sell.

Another factor that could slow the soybean expansion is Brazil's annual Harvest Plan, or lack of it. This is the equivalent of the Farm Program in the United States, but it is done on a yearly basis. Details of the plan are usually released in May and the program takes effect either June 1st or July 1st. No details have been released as yet and when they are released, I do not expect the plan to be very favorable for farmers.

The plan could contain less subsidized credit for production loans, the credit is expected to be tighter, and the cost of the credit is expected to be higher than last year. The federal government is hemorrhaging money and cutting programs left and right. Additionally, they may change administrations just at the time the Harvest Plan is being formulized, which could add to the confusion and the delays.

Increased corn acreage and less soybean acreage in Argentina - Farmers in Argentina are poised to significantly increase their 2016/17 corn acreage due to government policies that now favor increased corn production. Since corn and soybeans compete for the same acres in Argentina, the increased corn acreage could result in decreased soybean acreage. Farmers in Argentina want to get back to a more normal crop rotation, so they are expected to plant maybe 30-40% more corn next growing season and maybe 2% less soybeans.

La Nina could impact South American crops - Most meteorologists are forecasting a transition to La Nina sometime over the next few months. It is uncertain if a developing La Nina would be here in time to impact the U.S. crops, but it would certainly be in place in time to impact the 2016/17 growing season in South America. A strong La Nina correlates with hotter and dryer than normal conditions in southern Brazil and Argentina, but there is not much of a correlation with the weather in Mato Grosso and central Brazil. Bottom line - a strong La Nina could result in below trend line soybean yields in South America.

Summary - In recent years, the market has gotten used to huge soybean crops coming onto the market every six months, that streak has now been broken with the flooding in Argentina and we might see another sub-par soybean crop in South America as well in 2016/17.