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July 9, 2014

2014/15 Brazilian Soybean and Corn Acreage and Production

With the prospects for big corn and soybean crops in the U.S. and lower commodity prices as a result, let’s take an early look at what these potential lower prices mean for the 2014/15 growing season in Brazil.

South American Planting Schedule - As a quick reminder, the full-season corn planting in Brazil will start in August and conclude in October or November. The safrinha corn in Brazil is generally planted in January and February, but it could be planted as late as March. Brazilian farmers start planting their soybeans on September 15th, which is the end of the 90-day soybean free period, and planting concludes in late November or early December. Farmers in Brazil start to plant their cotton in December and the planting concludes in February.

In Argentina, the first batch of corn is generally planted in October and the second batch of corn is generally planted in December. In recent years there has been a shift to more late-planted corn as opposed to early-planted corn. For the last three years, much of the late planted corn has outperformed the earlier planted corn. Farmers in Argentina start to plant their soybeans in October and the planting concludes in January when the last double crop soybeans are planted. The sunflowers in Argentina are planted a little earlier in September-October-November.

2014/15 Brazilian Soybeans Estimated at 93.0 Million Tons - The general rule of thumb is that if May soybean futures are in the range of US$ 11.50 to 12.50 a bushel, then farmers in central Brazil can expect to make money growing soybeans. Currently, the May futures are hovering right around US$ 11.50, which is the bottom end of the breakeven point for soybeans. In southern Brazil, farmers can make money growing soybeans at a much lower price due to lower transportation costs and lower cost of production.

When soybean prices approach the breakeven point in Brazil, the first thing farmers do is to try and reduce costs. The best way to do that is to reduce the amount of fertilizers applied to the crop. If they have been vigilant in maintaining their fertility levels, reducing their fertilizer applications may not impact soybean yields significantly if they have good weather during the growing season.

Reducing soybean acreage due to low prices is not a very realistic option for Brazilian farmers unless we are talking about catastrophically low prices. Soybeans are basically a monocrop in Brazil and very little of the traditional soybean acreage is rotated to other crops. Therefore, farmers would not rotate to other crops unless corn or cotton prices were very high compared to soybeans, which does not seem very likely over the next few months. In many areas of Brazil, if you don’t grow soybeans, you are not going to stay in the farming business very long.

Under the present price scenario, the 2014/15 soybean acreage in Brazil might expand by 2-3-4%. It certainly will not expand by the 8.5% it expanded in 2013/14. Conab is estimating that 30.1 million hectares of soybeans were planted in Brazil in 2013/14 and the soybean acreage increased at the end of the season due to an increase in safrinha soybean acres. For the time being, I am going to estimate that the Brazilian soybean acreage in 2014/15 will increase 1.0 million hectares to 31.0 million (+3%). Note - if soybean prices continue to decline going into the fall, then this estimate is overly optimistic.

Soybean yields were disappointing in 2013/14 (2,856 kg/ha or 41.4 bu/ac) due to dry weather in southern Brazil. If the weather cooperates and yields return to a more normal level (3,000 kg/ha or 43.5 bu/ac), I expect the 2014/15 Brazilian soybean production to be in the range 93 million tons or 7.0 million tons more than in 2013/14.

2014/15 Brazilian Corn Estimated at 78.0 Million tons - The price prospects for the 2014/15 Brazilian corn crop do not look very good at all. Farmers are currently harvesting their safrinha corn in Mato Grosso, which is the number one corn producing state, and corn prices are very low for the second year in a row. Corn prices are below the cost of production in Mato Grosso and there is little prospect of improvement any time soon. In some areas of the state the price of corn has declined 30% to 40% since the end of May (see later article).

Safrinha corn producers look to the July futures for price direction and the July 2015 price is in the range of US$ 4.40 a bushel. If the corn was grown close to an export facility, then a US$ 4.40 corn price would be tolerable, but much of Brazil’s corn is grown in Mato Grosso and it costs US$ 2.50 to 3.00 to transport the corn to an export facility putting the price to the farmer at below his production cost which is about US$ 3.00 to 3.50 a bushel. That is why for the second year in a row, the federal government will probably purchase millions of tons of Mato Grosso corn at the guaranteed minimum price of about US$ 3.00 a bushel.

The amount of safrinha corn produced in Brazil has increased tremendously over the last few years and in fact, 58% of Brazil’s corn was grown as a second crop after soybeans last year. There was a late surge in safrinha corn acreage in March due to improved corn prices earlier this year, but that surge probably will not happen in 2015 if corn prices remain depressed.

In 2013/14 Brazilian farmers reduced their full-season corn acreage by 1.3% to 6.69 million hectares and they reduced their safrinha corn acreage by 0.2% to 9.03 million hectares. The total corn acreage in Brazil in 2013/14 declined by 0.7% to 15.72 million hectares. For the 2014/15 growing season I expect the Brazilian corn acreage to hold even at best (not very likely) and probably to decline 2-3-4%. If there is a 3% decline, then the 2014/15 corn acreage in Brazil would be 15.24 million hectares.

Unlike soybeans, much of the corn production in Brazil is an option and not a necessity, especially over the last few years when more and more of the corn has been grown after the first crop of soybeans are harvested. Farmers don’t have to plant safrinha corn to stay in business and in fact, there are some alternative crops such as cotton, sorghum, soybeans, sunflowers, dry beans, popcorn, etc. If the economics don’t work for safrinha corn, farmers can simply cut back on their safrinha corn acreage. The full-season corn yields were disappointing last year due to dry weather in southern Brazil. If the nationwide corn yield in 2014/15 returned to a more normal level (5,150 kg/ha or 79.3 bu/ac), the 2014/15 corn crop in Brazil would be in the range of 78.0 million tons or approximately equal to what was produced in 2013/14. Note - if corn prices continue to decline into the fall, then this estimate of Brazilian corn production is overly optimistic