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ANALYSIS: La Nina may dent Brazilian crop hopes but is supporting high prices for some

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The most recent (published 5 October) update from NOAA (the US National Oceanic and Atmospheric Administration) confirms what has been apparent to farmers across Argentina, Brazil and western and central states in the US for weeks, which is that La Nina drought-induced conditions are present.

 

Despite heavy rainfall from tropical storm Beta inundating parts of Texas and Mississippi, drought conditions prevail across much of the US. Parts of the cotton growing areas of Texas have had less than half normal rainfall. North-east states registered between 2% and 7% of normal rainfall in September.

 

Almost all of Kansas, the country’s leading wheat producer, now has some degree of drought. Yields in several key US states have undershot early hopes for corn and soybean.

 

Nevertheless the current US soybean harvest is moving fast - around 38% of the 2020-21 crop has been harvested, outpacing the five-year average by 10 points.

 

Brazil’s drought

 

In Brazil however insufficient rainfall is delaying planting of the 2020-21 soy crop. By this time in a usual year almost 5% of the soy crop is planted, yet this year just 1.6% is in the ground, according to the local agricultural marketing consultancy AgRural. Soybean planting requires high soil moisture content.

 

This delay may not affect the size of the overall soybean crop - in 2019 Brazilian soybean planting was delayed by two weeks yet Brazil still managed to produce 126m tonnes, then a record. Recent estimates from the International Grains Council (IGC) are that Brazil’s 2020-21 soybean harvest will see 126.8m tonnes, alhough the USDA and others see the harvest exceeding 130m tonnes.

 

A delay in Brazil’s soybean harvest could however benefit US soybean exports to China in January, when competition between Brazil and US soybean exporters typically hots up.

 

A further concern is that next year’s cotton crop in Brazil could be impacted - cotton is often planted after soybeans and if the dry conditions continue farmers may opt to plant corn rather than cotton. Corn requires 500 to 800 mm of water during its total growing period, as against cotton’s 700 to 1,300mm.

 

However, as forecasts for the carryover stocks at the end of the 2020-21 cotton season are generally in excess of 100m 60-kilo bales, a lower Brazilian cotton crop should easily be absorbed, given that India has this year experienced a good monsoon and is likely to produce more than 6m tonnes of cotton.

 

The latest estimate from Cotlook is that China, the world’s biggest cotton importer, has cleared more than 500,000 tonnes of lint via state auctions but still has some 2.5m tonnes in its warehouses, representing around four months’ consumption.

 

Brazilian dryness is also likely to dent its coffee output. With most of central Brazil experiencing the lowest levels of soil moisture in the past five years, most of the coffee tree flowering for the next coffee season has happened when the trees are parched, which will reduce the size of the overall crop.

 

Dryness underpins prices

 

The widespread dry conditions have helped push CBOT corn, soybean and wheat futures higher. Where prices go from here depends largely on weather conditions over the next couple of months.

 

If La Nina settles in and proves strong, then the drought in Brazil and elsewhere, given continued strong import demand from China and other Asian countries, should continue to support high prices for grains and oilseeds.

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