This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Wednesday, October 09, 2013.
With the USDA being closed, the market is craving all of the data it can get. Today (10/09) we got a snapshot of the Brazilian Ag situation, thanks to our friends at CONAB (think of them as the USDA of Brazil.) They commented on the projected production totals for 2014 for Corn and Beans, along with an update on the current wheat crop there.
2014 Soybean production is seen between 87.6 mmt and 89.7 mmt / 3.2 bln bu and 3.3 bln bu. This is a 10% increase over last year.
- This projection estimate comes in just above where the US soybean production numbers are. US producers should get ready to send the World’s Largest Soybean Producer title south.
- So far the crop is slightly behind planting pace with about 3% in the ground.
- Moisture levels in most areas are adequate, but there is talk some producers are waiting on more rains (expected this week in Mato Grasso) before planting.
- CONAB projected Brazilian demand at 85 mmt (40 mmt domestic, 45 mmt exports). This puts the world stocks to use levels at very sustainable levels. This is one reason why I believe US prices are too high.
- The charts below show projected 2014 exports for the US and Brazil. As you can see, Brazilian exports are growing while the US remains stagnant.
2014 Corn production is expected to be between 78.4 mmt and 79.6 mmt / 3.1 bil bushels.
- Brazilian corn is not a heavily produced commodity in SAM. This year’s expectations are larger than last years realized amount of 74 mmt, well below the year prior when Brazil produced above 80 mmt of corn.
- Brazil’s corn crop will be about 1/4th of what the US will produce.
- Brazil splits production between two crops. The first crop is expect to be about 7% less than last year to make the way for early planted beans.
2013 Wheat crop projections were lowered from 4.95 mmt to 4.77 mmt / 184 mil bu to 175 mil bu.
- Brazil is not known for their wheat as their crops are very, very small relative to other nations. We keep an eye on this because Argentina is a much larger wheat producer and were facing similar growing conditions as Brazilian wheat farmers.
- Even with the losses, the wheat crop in Brazil is 9% over where it was a year ago.
For those new to TWIG, following the grains markets in South America, more specifically Brazil, is a bit different than here in the US. Brazil is normally heavy on Soybean production, which will be the case this year. Because of their excellent climate for Agriculture, there are usually multiple corn and bean crops.
Brazil has the capability to close the gap between them and the US from an overall production standpoint over the next 20 years. People need to realize their Ag industry is still in its infancy. They have a lot of advantages when it comes to weather and labor, but they are constrained by a few factors as well. One is land and the other is infrastructure. They are running out of arable land and are turning toward eliminating some of the Amazon to expand. The other problem is getting the product from the growing regions there to the ports. They do not have the rail, road or water systems the US does. Until this improves, the US will be able to price beans higher because of better dependability and shorter wait times. The wait time to get a ship into a Brazilian port can be as long as two months. Look for investment in infrastructure to be increased over the next ten years as Chinese demand continues to grow, much of said investment will probably come from the Chinese themselves.
My takeaway from this report is that US soybean producers need to prepare for lower soybean prices in years ahead. The competition is catching up; the world stocks to use levels are friendly and prices in Brazil are cheaper. With that said, the world is depending on Brazil to actually produce 88 mmt of beans. The road to get there will be bumpy, use those rallies to lock in prices as I expect US price action to be a lot like corn this year. The cash price will stay high until next year’s crop comes online, with the board getting weaker and weaker as 2014 goes along.
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