It's not over until it's over.
Brazil's soybean harvest was nearly 95% complete, and the market had already begun to transition away from the soybean harvest. Rio Grande do Sul, the second-largest soybean producer, was the last major region to finish harvesting. RGDS was coming off one of his best seasons in a long time.
Then it started raining.
With about 25% of the state still unharvested, heavy rains have begun to cause catastrophic damage to cities and farms, and the death toll is reported at 80 and rising. We see an image of what appears to be a lake where a few days ago there was a soybean field that was unharvested and ready for felling. Grain storage facilities are also submerged. Up to 10 meat packing plants have ceased operations.
RGDS has historically averaged as much as 6 inches of precipitation during April and early May. So far, more than 20 inches of rain has fallen in the same amount of time, with more than 10 more inches expected to fall in some areas over the next week. This is reportedly the worst flooding in 85 years.
Yield damage is widespread throughout the province, but the damage is slightly greater in the western region, which borders Argentina. It is important to remember that RGDS experienced extreme drought last season due to La Niña conditions. RGDS was finally about to make a comeback with an expected production of 21.8MMT. As many as six of his MMTs remain in the field, waiting for conditions to dry.
How will losses affect the market?
No one knows what the damage will be, but we agree that there will be some damage. Some estimates place the MMT loss at between 2 and 5. Even in fields that can be harvested, there is a high possibility that there will be quality problems.
We were initially skeptical that such a loss would garner the market attention it has in the past. In the end, Mato Grosso lost more than 10 MMT, but neither the market nor the USDA seemed to care. Markets were expecting a cut in soybean production in this Friday's May 10 report, even without taking flooding into account. If the USDA does not make significant cuts on Friday, it will solidify its status as a completely unrelated government agency.
Figure 1: Kanoa, RGDS
Although export cargo loading at ports does not appear to be significantly disrupted, many roads have been closed and supply chains have been temporarily paralyzed. There's not much to do now but wait for it to pass. Rainfall is likely to become more active towards the middle of next week.
Although soybean damage is the focus of attention in the RGDS, the state is also a large-scale producer of primary crops corn, rice, and wheat. The state produces:
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Of the approximately 5MMT of corn, approximately 17%, or 30 million bushels, remain unharvested.
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4.3 MMT of wheat, which accounts for 44% of Brazil's production
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7.4 MMT of rice accounts for 75% of Brazil's production.
South American corn crops shrink
The forecast for Safrinha, Brazil's second-crop corn, is similar to last week, with no visible precipitation expected. The rainy season has ended, and some regions have already reached 30 days without rain. Brazil's maize planting scale is likely to be determined by planted acres, and proportionally Paraná state will experience the most productivity losses. Paraná is expected to suffer losses of more than 3 on MMT.
It is not unusual for the rainy season to end in late April to early May, but what is unusual is that the summer heat continues well into autumn. Heat levels continue to be 5 to 10 degrees above average in most of the Safrinha growing area. The average temperature in Cuiaba, the capital of Mato Grosso state, is 91 degrees Fahrenheit, but temperatures can exceed 100 degrees Fahrenheit.
Corn does not perform well in such extreme temperatures, especially during pollination. Then the Safrinha corn is stressed. This will put pressure on the USDA to reduce corn production estimates. Harvest of the second corn crop will begin within the next two weeks.
Figure 2: Heat wave continues in Brazil
Argentina continues to shrink its crop size. The Buenos Aires Grain Exchange has now lowered its estimate to 46.5 MMT. It is worth noting that while early season estimates called for more than 56 MMT of Argentine corn, the crop has lost a whopping 10 MMT so far, primarily due to pest pressure. Much of the heavy rain that falls in southern Brazil crosses the border into Argentina, delaying the harvest. That's about 11% behind the average over the past five years. Argentina's corn harvest is a slow process and is expected to last until the end of August.
This harvest season has dropped from a record season to 6th place.
Matthew Kruse is president of Comstock Investments. To subscribe to their reports, www.commstock.com.
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