By Andi Anderson
The significance of fundamental analysis was evident in the 2023/24 South American grain season. By November 2023, both CONAB and USDA, Brazil's and the U.S.'s respective agricultural agencies, had optimistic forecasts for Brazil’s grain production despite clear weather-related challenges.
Their projections for soybean and corn production significantly missed the mark, with USDA estimating 10 MMT and 7 MMT higher than realized, and CONAB missing by 15 MMT and 4 MMT, respectively. To illustrate, USDA's soybean projection error is comparable to 1.3 times Ohio's 2023 production, while the corn gap equals half of Ohio’s output. These missteps highlight the importance of on-the-ground observations and thorough analysis.
Interestingly, these agencies perform better when weather conditions are favourable, as seen in the optimistic projections for Brazil’s 2024/25 grain season. Both USDA and CONAB forecast record soybean production at 169 MMT and 166 MMT, respectively, alongside rising corn production estimates of 127 MMT and 119 MMT.
Thus far, stable weather and a rapid planting pace support these projections. By November 10, 2024, 66.1% of soybean acres had been planted, compared to 57.3% at the same time last year, with the corn first season slightly ahead as well.
Financial indicators and production costs provide additional context. The Mato Grosso Ag Economics Institute (IMEA) reports a 2.7% reduction in soybean production costs per acre due to lower seed and crop protection input prices. Corn production costs are up by 3.4% but remain manageable. Brazil's soybean yield is also expected to grow by 9%, according to USDA estimates.
Currency fluctuations add complexity. From November 2023 to November 2024, the Brazilian Real weakened by 18% against the U.S. Dollar. This devaluation benefits Brazilian farmers by boosting dollar-denominated earnings, prompting future contracts and spot sales in dollars.
This dynamic has contributed to declining soybean futures at CME Chicago. By November 20, 2024, January 2025 soybean prices had dropped to $9.89 per bushel, 23% lower than the previous year. If the Real continues to weaken, further downward pressure on prices is likely.
Photo Credit: usda
Categories: Ohio, Crops, Corn, Soybeans