Is agricultural production for 2023 already seen? Latest USDA report shows Brazil’s crops not a disaster, despite early crippling drought

Despite drought and weather concerns to end 2023, South America still has a big harvest. The latest USDA WASDE report released Friday made minor revisions to South American agricultural production estimates and even increased Argentina’s corn production estimate.

In the March WASDE report, USDA made the following revisions:

  • Reduce Brazil’s soybean production estimate by 1 million tonnes (mmt) to 155 mmt.
  • No change in Brazilian corn crop estimate of 124 mmt.
  • No change in Argentina’s soybean production estimate of 50 million tonnes.
  • Argentina’s corn crop estimate increased by 1 mmt to 56 mmt.

The biggest controversy was the USDA’s failure to further reduce Brazil’s soybean production estimate, with the 1 mmt drop falling short of trade expectations.

“When you look at that particular report, those were the only numbers that people were really looking at,” says Ever.Ag’s Mike North. “So for them to not make a change, I think it kind of shook up the basket in terms of expectations, but probably more to come.

North says on-the-ground estimates suggest there is more room for reductions, with North estimating that an additional 4-5 million tonnes could be reduced compared to Brazil’s soybean estimate.

“I think the question that the market is still trying to answer is: how much more growth do we need to perhaps add to Argentina? And how do we balance an Argentinian harvest that is twice as large as that of last year and a less-than-record harvest coming from Brazil,” says North.

Not all private companies believe that the harvest in Brazil is decreasing. StoneX Group released its recent Brazil survey, increasing its forecast for Brazil’s 2023-2024 soybean crop by 1.5 mmt to 151.5 mmt. This is still lower than the current USDA estimate for Brazilian soybeans of 155 mmt.

“It’s the old story with these grains now. They have the genetics. They just wait for the rains, and while they wait, the crops look terrible. When they get two inches of rain, all of a sudden they “I had a pretty good harvest and since then they’ve had decent rains,” says Mark Gold of StoneX Group. “So there’s no reason to think they won’t get a pretty good crop. Is it 155 (mmt) or 156 (mmt)? I don’t think so. I think we’re a lot closer 150 mmt or 151 mmt than anything else. But we’ll see where we go.

Brazil exported 6,610 million tonnes of soybeans in February, according to official government data. This represents an increase of 3,755 mmt (118%) from January and 1,593 mmt (31.8%) more than last year, given the rapid soybean harvest.

US and global closing actions

The USDA made no changes to the U.S. ending stocks figure, except for wheat. North says exports from the Black Sea region have been remarkable, especially those from Ukraine.

“It becomes a double,” North says. “Now you add in these extra bushels coming from South America, because they got the good weather that Mark alluded to, and you’re entering another growing season in the U.S. The balance sheets, globally , seem really very full and that ultimately opens the way.”

North says that when you add an additional layer of additional Ukrainian volume, along with 5 million tonnes of wheat from Russia in the next marketing year, it adds up to another layer in the overall story of the glut of the world supply of cereals.

“There will be large reserves of grain available on the world market,” says North.


China cancels wheat purchases, but wheat seems unfazed

The USDA highlighted weak exports in the latest WASDE report, but there’s more bad news for the wheat market this week. On Friday, the USDA reported canceled sales of SRW from China of 110,000 metric tons in the 2023/2024 marketing year, which marked the second consecutive day of cancellations.

“Isn’t it interesting that we had two cancellations, one on Thursday and one on Friday, but the wheat market, right now, is looking at a key reversal and hit a low overnight,” says Gold. “So this market has rejected the bad news, if we see this higher close, and I think the markets have definitely seen the bottom here.”

The key now, he says, is what the funds do, because they still hold short positions.

“If we can just get the funds to pull the trigger and come in and cover some of these massive short positions, which they started taking last week on corn – they covered about 50,000 corn – but there’s much more to come and that may lead us to higher prices,” Gold says.

What motivates funds to exit short positions?

As Gold mentioned, funds are extremely short. So what will it take for funds to exit these positions? North says that right now, as geopolitical events continue to surprise the world, several factors could cause funds to shift and bring some bullish enthusiasm back to the market.

“It could very well be that it’s some of this strong job growth that we continue to show, and some of the ultimate strength of the economy, that’s lifting this inflation story a little bit more and starting “maybe bring them back into the mix to use commodities as an inflation factor. play,” says North. “But I think the one move that everyone is hoping for is the weather.”

North says the current drought map shows the United States remaining dry.

“I think we’ll have to have a little patience with this story, given the results of last year’s harvest after a very hot and dry June,” says North. “So it’s an unknown factor at the moment. But it will take something significant, it will take something unknown, something like weather, to develop further and become a real threat.”

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