August 20, 2014

Reaction to WASDE's 2014/15 South American Crop Estimates

The August WASDE Report had some estimates for the 2014/15 South American growing season that I agree with and some estimates that I do not agree with.

Brazil - For the 2014/15 Brazilian soybean and corn crops I think they are moving in the right direction. They estimated that the Brazilian soybean production would increase 3.5 million tons from the last growing season to 91.0 million tons. While they moved in the right direction, I am more optimistic about the 2014/15 Brazilian soybean crop and I am estimating that Brazil will produce 93.5 million tons of soybeans in 2014/15. For the Brazilian corn crop, they are estimating a 4 million ton reduction in corn production to 74.0 million tons. I do not have any problem with that estimate since I am estimating the 2014/15 Brazilian corn production at 74.7 million tons.

Argentina – I do not agree with the WASDE estimates for the 2014/15 soybean and corn crops in Argentina. WASDE is estimating the 2014/15 Argentine soybean crop will be unchanged next growing season at 54.0 million tons, but they have the 2014/15 Argentine corn crop increasing 2.0 million tons to 26.0 million.

WASDE is estimating that the farmers in Argentina will reduce their soybean acreage by 200,000 hectares from 19.8 mha in 2013/14 to 19.6 mha in 2014/15. At the same time they are estimating that the farmers in Argentina will increase their corn acreage by 250,000 hectares from 3.4 mha in 2013/14 to 3.65 mha in 2014/15.

I am sure they have a rational for these changes, but to me, it appears to be backwards. I think the soybean production in Argentina will increase slightly and the corn production will decline. To most observers, it appears that soybeans have all the advantages including: a higher price compared to corn, a cheaper cost of production compared to corn, higher yields relative to corn, and lower production risks compared to corn. Given those set of facts, I do not see why farmers in Argentina would plant more corn instead of planting more soybeans.