Brazil row-crop forecasts diverge as harvest nears end

Hot on the heels of Wednesday’s global supply and demand update from USDA, Thursday saw CONAB, Brazil’s National Supply Company, release its June crop update. With an improved outlook for the safrinha corn harvest and a rise in the planted soybean area, CONAB increased projected 2023-24 production for both row crops compared to its May report.

In last week’s edition of the World Agricultural Supply and Demand Estimates, USDA left Brazilian corn production unchanged at 122 million tonnes (Mt). The main point of difference is in the respective planted area numbers, with USDA down only 4 percent year on year compared to CONAB’s 6.4pc decline. There is also a 3.5pc difference in the harvested yield, with USDA at 5.67t/ha and CONAB at 5.48t/ha.

CONAB predicted total 2023-24 corn output at 114.14Mt, up from 111.64Mt in May, but significantly lower than the 2023 harvest of 131.87Mt. The total planted area of 20.84 million hectares (Mha) is 6.4pc lower than the final 2022-23 area of 22.27Mha, accounting for a significant proportion of the lost output. The average yield in 2022-23 was 5.92t/ha, and based on CONAB’s current production and seeded area numbers, the average 2024 harvest yield is expected to drop to 5.48t/ha.

CONAB is now calling the safrinha corn crop 88.116Mt, a 2.3pc increase compared to the May production estimate, but 13.9pc lower than last season’s harvest of 102.164Mt. With around 12pc of the crop harvested at the start of last week, early yield numbers have reportedly surprised to the upside, particularly in regions that experienced more favourable weather conditions post-planting. The area planted to safrinha corn is down significantly from 17.18Mha to 16.15Mha. That puts the projected yield for the 2024 harvest at 5.46t/ha compared to 5.95t/ha in 2023.

CONAB has output from this season’s first corn crop at 23.62Mt off a planted area of 4.03Mha, putting average yield at 5.86t/ha. This compares to 27.37Mt, 4.44Mha and 6.16t/ha respectively last year. Production from the second crop is estimated at a tad over 2.4Mt, up from 2.33Mt the previous season. This is off a seeded area of 660,000ha for an average yield of 3.67t/ha.

Respected row-crop analyst Michael Cordonnier agrees with CONAB, increasing his corn output estimate by 2Mt to 114Mt, with a slightly higher forward bias, in his weekly update, which was released ahead of USDA’s June report.

While the spread decreased, the massive discrepancy between the CONAB and USDA numbers remain unresolved.

While Brazil is expected to remain competitive on the world stage, CONAB’s lower output estimate effectively caps Brazilian corn exports in 2023-24 at around 42Mt. This compares to the latest USDA estimate of 50Mt, leaving an 8Mt hole in global trade. The divergence will be resolved at some point, but that is unlikely to happen for at least a couple of months, when the second crop’s yield trends are more apparent and final harvest figures are available. If it ends up at the low end, then the lost corn-export demand will most likely be funnelled into the US balance sheet over the next 12 months, with lower seeded areas being reported in both Ukraine and Russia.

On the soybean front, CONAB pencilled final production in at 147.35Mt, 1.2Mt higher than its May forecast, but 4.7pc lower than last season’s record output of 154.62Mt. Unlike corn, the area planted to soybeans increased season on season, up almost 2Mha to a record 45.98Mha. This means that the crop yield suffered considerably at the expense of the country’s extremely variable, and in some cases extreme, growing season weather. The average soybean yield for the 2023 harvest was 3.51t/ha, but this has fallen 8.6pc this year to 3.21t/ha.

In last week’s update, USDA reduced its Brazilian soybean production estimate by 1Mt, but remains stubbornly higher than CONAB at 153Mt. With the harvest now completed, it is difficult to understand why USDA insists on taking such small steps to reduce the spread. To provide another perspective, Dr Cordonnier left his soybean production estimate unchanged at 147Mt in his latest Brazilian crop update.

Despite the smaller harvest, exports continue at near-record pace, with shipments in the first 12 days of June reported at more than 6Mt and on track to exceed 15Mt for the month. That would be 1.7Mt ahead of last year’s pace and, if realised, would put February-June soybean exports at record levels, almost 850,000t ahead of the same time in 2023.

Meanwhile, an executive order delivered by Brazilian President Luiz Inácio Lula da Silva on June 4 will limit the ability of the country’s commodity exporters to take advantage of tax credits, thereby hurting their bottom lines. It takes effect immediately, but needs congressional approval within four months to remain valid. In the short term, domestic merchants are pushing soybean and corn prices higher to compensate.

The surprising tax change can potentially reduce the global competitiveness of Brazilian corn and soybeans, conceivably pushing demand to the US. However, there is an extremely powerful agriculture-focussed lobby network within Brazil, and the backlash may have enough national influence to halt progress through Congress.

The reaction in China, the world’s biggest importer of soybeans and Brazil’s biggest soybean customer, was swift. In the heart of Brazil’s peak soybean-export window, Chinese importers have booked at least 208,000t of US soybeans, with the flash sales the first such transactions since January.

While Brazil’s summer-crop output appears to have stabilised, the deficits relative to USDA’s global numbers mean some holes must be filled. This will push attention to row-crop progress and production projections in the US, with any hiccups having a bullish impact on international oilseed and feedgrain prices.

Tags: crop, yield, safrinha corn, output, exports, row crops, harvest, USDA, Brazil, Conab, soybeans, Production