Traders were expecting USDA to cut its Brazilian corn production estimate on Tuesday, with one wire service average trade estimate at 93.25 million metric tons (mmt) and a range of estimates from 95 mmt all the way down to 86.9 mmt. Instead, USDA made no change despite La Nina-type weather in the southern part of Brazil, leaving the number at 95 mmt. USDA didn't change Argentine corn production either, leaving it at 42 mmt. Why did it stand pat when the trade clearly had a different opinion?
A few considerations:
1. Brazilian first-crop acreage is definitely down, but farmers can expand double-crop acres if there is any price reaction to the first crop.
2. The La Nina pattern is weak thus far, with NOAA giving only 50% odds of it remaining in force by March or April.
3. Our research shows that South American corn yields in La Nina weather patterns can vary greatly depending on the intensity and duration of the event.
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4. U.S. corn yields were remarkably resilient in the face of dry fall weather. USDA had to keep raising yield estimates and may be cautious about the same thing happening in South America.
5. It is still early.
CONAB is estimating that Brazilian verao, or first-crop corn acreage, is down 10% from last year at 12.24 million acres. CONAB expects the inverno, or double-crop acres, to be almost unchanged from a year ago at 29.92 million acres. That is still subject to change via prices or delays in getting the soybean crop out of the field. If you put the two crops together, expected corn acreage would be down 2.4%.
The NOAA Recent Evolution report dated Dec. 11 was still using November outlook data, with the monthly update on the probabilities due on Dec. 14. The November run had 50% odds of La Nina through the Feb-April window, but 80% odds of a return to neutral, or La Nada conditions, by the April-June window.
There have been several recent instances where La Nina lasted only five months, as measured by the Oceanic Nino Index (ONI), including 2005/06, 2008/09 and 2016. ONI readings during those events typically only got minus 0.7 or minus 0.8 degrees below normal out there in the Nino 3.4 zone. The more severe events in 2010/11 saw the ocean as much as minus 1.7 degrees below normal.
This distinction is important. Brugler research shared with Ag Marketing Professional clients this week showed very minimal yield impact of La Nina on first-crop Brazilian corn production. That crop overlaps with the short La Nina windows. In fact, the Brazilian first-crop average yield was above trend by more than 9% in La Nina events since the 1980s. One reason for this might be the tendency for northern and central Brazil to be wetter than normal in a La Nina pattern. Rain makes grain!
If the La Nina pattern intensifies and sticks around, the yield impact is much more severe on the winter corn, or second crop, formerly known as the safrinha crop. Average corn yields for second-crop corn in Brazil were 20% below trend line in years where the La Nina pattern was still in place during the April-June quarter. Since second-crop acreage is far larger than first crop, this is the one that really moves the production meter. The WASDE folks have no current data to suggest that the weather pattern will still be in place, and thus can't fade the trend-line yield.
Argentina doesn't have the double-crop complication, but its crop is also planted later and harvested well after the first-crop Brazilian corn is out of the field. There is a definite correlation with drier weather in eastern Argentina during a La Nina event, but it also tends to be cooler. That has proven in some cases to limit the stress on corn. For Argentina, we are back to point No. 5: It is just too early to make the call.
Alan Brugler can be reached at firstname.lastname@example.org
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