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July 5, 2016

La Nina's Potential Impact in South America

While North America is in the midst of its summer growing season, farmers in South America are wrapping up the harvest of their 2015/16 crops and looking forward to the 2016/17 growing season. Currently in Brazil, the 2015/16 soybean crop is completely harvested, the safrinha corn crop is approximately 20% harvested, and the cotton harvest is just getting underway. In Argentina, the soybean harvest is essentially complete and the corn harvest is approaching 45% complete.

The 2015/16 growing season in South America was dominated by El Nino, but that has now faded away and is being replaced by a developing La Nina, which is a cooling of waters in the Pacific Ocean. According to a study conducted by INTL FCStone and reported in Noticias Agricolas, the developing La Nina should exert its influence in South America during the second half of 2016, which is the planting and crop development period in South America.

The study concluded that a La Nina generally results in dryer than normal weather in southern Brazil with less defined impacts in central Brazil. Southern Brazil should experience dryer that normal weather during September through November when the summer crops are planted and developing. The impacts should moderate after the first of the year with the weather turning more normal.

Therefore, in Brazil, the impact could be greatest on the soybean and full-season corn crops. The first crop to be planted in southern Brazil will be full-season corn which the farmers will start planting in August if there is sufficient soil moisture. The full-season corn accounts for approximately one-third of Brazil total corn crop. The 2016/17 soybean crop will start to be planted on September 15th with the expiration of the soybean-free period in Brazil.

Brazilian farmers are very keen on planting their soybeans as early as possible in order to allow for the timely planting of the safrinha corn crop. A delay in the soybean planting also delays the safrinha corn planting, which greatly increases the risk of lower safrinha corn yields.

A timely start for the soybean planting will also be very important this year because of the expected tight domestic supply of soybeans before the next harvest starts in January. In Conab's June Crop Report, they estimated that the carryover supply of soybeans in Brazil would decline to 0.44 million tons or just four days of domestic consumption. The market would never allow the supply to get that tight and domestic demand would have to be rationed by higher prices. If the start of the soybean planting is delayed due to dry conditions in September and early October, the already expected tight supply of soybeans could get even worst. Therefore, a timely start to soybean planting in Brazil will be paramount this year.

Dry weather in southern Brazil during September-October-November would actually be welcome news for wheat producers. For the last two years, their wheat crop has been severely impacted by too much rain during harvest, which occurs during that period. Their problem is almost always too much rainfall not too little.

Approximately two-thirds of Brazil's corn is grown as the safrinha crop planted in January-February-March after the first crop of soybeans are harvested. According to the INTL FCStone study, the impact of La Nina will fade somewhat after the first of the year, so at this point, it may not have much of an impact on the 2016/17 safrinha corn crop.

As mentioned, a La Nina generally has less of an impact in central and northeastern Brazil. Therefore, the two major cotton producing states of Mato Grosso and Bahia should have more or less normal weather during the cotton growing season. In fact, the study indicated that the rainfall during December-January-February in northeastern Brazil might actually be above normal.

More than half of Brazil's sugarcane is produced in the state of Sao Paulo and dry weather late in the year usually allows for the sugarcane harvest to wrap up in a timely fashion, bit if it is too dry, it could impact the establishment of the newly planted sugarcane.