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May 16, 2012

Reaction to Reports from USDA and Conab

Below are my observations following a series of reports issued last week concerning the 2012 U.S. crops as well the 2011/12 and 2012/13 crops in South America.

WASDE Estimates for the 2012 U.S. Growing Season

  • Corn planted acreage at 95.9 million acres - The final corn planted acreage may end up being a little more than 95.9 million acres because of the increase in the "acreage pie" although recent wet weather may have acted to limit the increase.
  • Corn harvested acreage at 89.1 million acres - 92.9% of the planted acreage will be harvested for gain production which seems like an accurate estimate since the total acreage is larger than previous years and the amount of corn used for silage is about the same, and thus the percentage harvested for grain would be a little larger than normal.
  • Corn yield of 166 bu/ac - This yield is two bushels above trend and if achieved, it would be a new record corn yield. Reasons cited for the record high corn yield were the fast planting pace in April and the rapid corn emergence in May. If the weather cooperates this summer, the U.S. corn yield could be as high as 166 bu/ac or maybe even higher, but it seems a little early to be this aggressive on corn yields before the entire crop is even planted.
  • Soybean planted acreage at 73.9 million acres - The soybean acreage will be larger than this due to the increased interest in double crop soybeans. The winter wheat crop is developing 2-3 weeks earlier than normal which will allow more time to plant additional double crop soybeans. Total soybean acreage could end up being close to 76 million acres.
  • Soybean harvested acreage at 73.0 million acres -They estimated that 98.8% of the planted acreage would be harvested for grain which seems OK. If 76 million acres of soybeans are planted then the total harvested acreage would be approximately 75 million acres.
  • Soybean yield of 43.9 bu/ac - This yield might be a little aggressive given the fact that there will be more double crop soybeans planted this year. The increase in double crop soybean acreage (maybe as much as 2 million additional acres) could hold down the average nationwide soybean yield by as much as 0.5 bu/ac, but as usual, the weather during July and August will be the determining factor for soybean yields.

WASDE Estimates for the 2011/12 South American Growing Season

  • Brazilian soybean estimate lowered 1.0 million tons to 65.0 million - I agree with this estimate since it is the same as my estimate for the Brazilian crop.
  • Brazilian corn estimate increased 5.0 million tons to 67.0 million - This is a huge one-month increase for any crop in South America. Changes this large are usually only seen when there is a severe drought ravaging the crops. This WASDE estimate is now larger than the Conab estimate for the corn crop. The only way this is going to be achieved is with perfect weather in Brazil for the next two months.
  • Argentine soybean estimate lowered 2.5 million tons to 42.5 million - They are headed in the right direction by lowering the soybean estimate, but I think they are still a little too high. The majority of soybeans remaining to be harvested in Argentina are expected to be lower yielding and when the harvest is complete, I think this estimate will be lowered some more.
  • Argentina corn estimate unchanged at 21.5 million tons - By not lowering the corn estimate, the WASDE number is now one of the highest estimates for the Argentine corn crop. I think it is a little too high and I anticipate that they will lower it in the future.

WASDE Estimates for the 2012/13 South American Growing Season

  • Brazil soybean estimate at 78 million tons - There is no doubt that Brazilians will increase their soybean acreage in 2012/13. Domestic soybean prices are at record levels all across Brazil. One of the contributing factors to these strong prices is the Brazilian currency that continues to weaken compared to the dollar. With good weather in Brazil during the 2012/13 growing season, the Brazilian soybean crop could be as high as 80 million tons.
  • Brazil corn estimate at 67.0 million tons - Farmers in southern Brazil are going to reduce their full-season corn acreage in favor of planting more soybeans. To counter that trend will be the fact that Brazilian farmers are expected to continue increasing their safrinha corn acreage in 2012/13. If the weather is good for the full-season corn as well as the safrinha corn, then I think this estimate is OK.
  • Argentina soybean estimate at 55.0 million tons - Argentine farmers are also going to plat more soybeans in 2012/13 because soybeans are cheaper to plant than corn and there is less risk that the government will interfere in the soybean export market than with corn, so soybeans is the safer crop. If Argentina has good weather during the growing season, then 55 million tons could be easily achieved.
  • Argentina corn at 25.0 million tons - This estimate might be a little aggressive given the fact that soybeans now appear to be the price leader. If there appears to be a good corn crop in the U.S., then corn prices may be on the decline at the time that Argentine farmers must make their planting decisions. If that turns out to be the case, then I think it would be difficult to achieve 25 million tons.
  • Paraguay soybean estimate at 7.8 million tons - This estimate appears to be on the low side since it would be less than the initial estimates for the 2011/12 crop before the drought occurred. Just looking at prices, it doesn't seem logical that farmers in Paraguay would plant fewer soybeans in 2012/13. An additional factor to consider in Paraguay is the sensitive issue surrounding agrarian reform. Most of the soybean farmers in Paraguay are Brazilians who immigrated to Paraguay in search of cheap land. Earlier in 2012, there were a lot of protests and civil unrest by Paraguayan landless rural workers demanding that the government expropriate some of the land from the Brazilian farmers and redistribute it to their members. Therefore, there is a level of uncertainty surrounding soybean production in Paraguay because it is unknown how this civil unrest will affect the level of investments in the 2012/12 soybean crop. How all this plays out is yet to be determined.

Conab Estimate for the 2011/12 Brazilian Growing Season

  • Brazilian soybean estimate increased 1.0 million tons to 66.68 million - The increase in soybean production seems a little odd since 80% of the increase came from the state of Parana, yet all the surrounding states such as Rio Grande do Sul, Santa Catarina, Sao Paulo, and Mato Grosso do Sul showed no significant changes compared to the April report. The soybean yield in Parana went from 2,234 kg/ha in April (32.4 bu/ac) to 2,429 kg/ha in May (35.2 bu/ac), or an increase of 2.8 bu/ac in one month. The yields in the surrounding states were essentially unchanged including Rio Grande do Sul where they conducted a special survey for the May report. In the commentary which accompanied the report, they did not address why they significantly increased the yields in just one state. It's hard to know what to make of this other than the possibility that maybe they thought there was a miscalculation in prior reports concerning the yields in Parana.
  • Brazilian corn estimate increased 0.76 million tons to 65.9 million - If the weather continues favorable for the safrinha corn crop and there is not freezing temperatures before the crop reaches maturity, this production is possible. The USDA now has an even higher estimate.