Repeat of La Nina raises risks for South American crops

It looks like we are in for a second consecutive La Nina year, which means a greater risk that South America will see crop-limiting weather.

The United States Weather Service last week said the La Nina has reformed and there is an 87 percent chance of it continuing through the December-to-February period.

Good production from this summer’s American corn and soybean crops currently has prices of those crops at prices significantly below where they were in the spring and summer.

But another rally could happen if La Nina brings dry weather to South America, lifting the market’s foundation in corn and soybeans and providing support for wheat and canola.

Last year’s La Nina contributed to a cascading series of problems that slashed Brazil’s second, or safrinha, corn crop.

That, along with surprisingly strong demand from China, contributed to the spring rally that saw corn prices rise to the highest level since 2012.

Here is what happened.

Dry weather in September and October caused farmers to delay planting soybeans.

Growing season moisture was less than normal but timely rains delivered a good soybean crop. However, the seeding delay led to a late harvest, which pushed back planting of the second corn crop that is seeded into the stubble of the just-harvested soybeans.

That meant the second corn crop missed out on the tail end of the rainy season and had to grow on deficient soil moisture as the rainfall in the dry season was much less than normal.

Several frost events added to the stress on the crop.

The badly damaged safrinha crop caused the country’s total corn production to fall to only 85.74 million tonnes, down 16.5 percent from the previous year, according to Brazilian forecaster Conab.

The drought also reduced water levels in several rivers. The Parana River, which starts in Brazil and flows south into Argentina, fell to its lowest level in 77 years.

The port of Rosario, which ships 80 percent of Argentina’s agricultural exports, sits on the Parana. Large ships were forced to take on reduced loads because of restricted drafts on the river.

This year, early season conditions are better.

The rainy season in Brazil has started off good with larger than normal rain in the past 30 days in many regions.

Strong international grain prices and a weak domestic currency hold the potential for strong returns for farmers, even with rising input prices, so they are expected to increase seeded area.

At the end of the first week of October, Brazilian farmers had seeded 10 percent of their intended soybean acres, up from only three percent last year at the same time and the long-term average of nine percent.

Conab forecasts production of soybeans to be 144 million tonnes, up about five percent over last year, assuming average weather.

If soybean seeding continues at a good pace, there won’t be a repeat of the delay that pushed back and hurt the safrinha corn crop.

But “average” weather is far from guaranteed.

Forecast modelling issued in September from the International Research Institute for Climate and Society for the October to December period shows strong potential for dry weather in southern Brazil, Uruguay and northern Argentina. Areas further north in Brazil could see a range from dry to normal to above normal rain, according to the models.

In Argentina, soil moisture is deficient in many areas but recent rain has raised hopes and got farmers into the fields.

As of Oct. 13, 23 percent of the expected record acreage of 17.5 million acres of corn had been seeded, according to the Buenos Aries Grain Exchange.

Seeding of the expected 42 million acres of soybeans had not started yet.

South American farmers have been suffering the same sticker shock on fertilizer, herbicides and other inputs that Canadian and American producers have faced. 

There are reports of shortages of product in the current campaign but a more serious impact might be felt in Brazil’s second corn crop seeded early in the new year.

If Brazilian farmers can’t get or afford fertilizer, then the second corn crop could again have disappointing yields.

Corn and soybean markets, because of the size of their global crops, usually have strong price influence over important Canadian crops such as spring wheat and canola.

But they have less impact this year, given the unusually tight supply of spring wheat and canola.

Even during the harvest in the U.S. Midwest, which usually puts downward pressure on all crop prices, spring wheat has rallied and canola has maintained its strong prices.

But if La Nina leads to another round of weather problems for South American crops it will support corn and soybean values during the North American winter and spring, which should also help keep wheat and canola prices elevated.