Argentina’s crops are in trouble as a third year of La Niña deepens one of the worst droughts in at least four decades. The US Department of Agriculture (USDA) in its most recent supply and demand report downgraded both Argentina’s corn and soybean output in 2022/23 for a third month in a row, subsequently reducing the country’s corn export projections to the lowest since 2017/18 while its soybean imports are expected to hit an all-time record. The reduced supplies will no doubt have implications for global trade and critical food supplies over the coming months, possibly opening the door to greater US exports. Below are more details:
Rumors are Argentina’s corn crop could end up sub-35 MMTs. The USDA most recently lowered its forecast to 40 million metric tons (MMT), down from 47 MMT in its previous report and an initial estimate of 55 MMT. Likewise, exports have been dropped from an initial 41 MMT forecast to just 29 MMT. That will be partially offset by large crops and increased exports from both Brazil and India.
Brazil’s exportable supplies are still a bit of a wildcard, however, as planting of its heavily exported second-crop corn is running behind, meaning a good portion (30% or more) could be planted outside the ideal window. On that note, Brazil has flipped to exporting soybeans so won’t be heavily in the corn export market again until around July when its second-crop harvest begins. With Argentina’s tight supplies, US corn could start to see more interest. Brazil is also going to be keeping more corn on hand domestically to fuel their new corn-based ethanol plants.
It’s worth noting that Ukraine supplies are also highly uncertain as the Black Sea grain deal has not yet been renewed. The deal is set to automatically renew on March 18 unless Russia objects. Ukraine has so far exported close to 19 MMT out of a total 23.5 MMT estimated by the USDA in the 22/23 marketing year. The country’s infrastructure could also present problems as Russia continues bombing campaigns that specifically target roads, bridges, and other vital transportation lanes. While they may manage to hit this year’s export estimates, next season could pose and even bigger challenge.
Rumors are now circulating that Argentina’s soybean crop could be sub-25 MMTs. The USDA recently slashed its estimate from 41 down to 33 MMTs, down from an initial estimate of 51 MMT as well as last year’s production of 43.9 MMT. That means Argentine crushers will likely need to import more soybeans. USDA currently has Argentina’s soybean imports pegged at a record 7.25 MMT, which is up +3.4 MMT from last year. Though Argentina is not a major soybean exporter they are typically the world’s biggest exporter of both soybean meal and oil.
The biggest difference between 22/23 and the past couple of years is that Brazil is expected to produce a monster crop of 153 MMT, while production in Paraguay is expected to rebound from low levels inflicted by drought last year. At current estimates, this should mean sufficient South American soybean supplies, which allows Argentina room to import. USDA estimates total South American production (Argentina, Brazil, Paraguay, and Uruguay) at 198.1 MMT, compared to 180.8 MMT last year and an all-time high of 197.3 set in 20/21.
Argentina won’t really start rolling on this year’s soybean harvest until April so there are several weeks of weather ahead that could further degrade the crop. At current estimates, global soybean supplies are bordering on being tight with the stocks-to-use ratio at 18.5% versus 19.2% last year and a five-year average of 19.9%.
USDA notes that soybean product supplies are already tight which is supporting high prices and shifting demand to alternative protein meals and vegetable oils. Subsequently, USDA did lower global soybean meal and oil exports in its latest report. However, weather issues are expected to dent alternative vegetable oil supplies, particularly palm oil in top producers Indonesia and Malaysia. Rising biofuel blends in Indonesia will further reduce global supplies. On a similar note, USDA points out that Brazil may lift its biodiesel blend rate this month which could push exportable soybean oil supplies even lower and prices even higher, putting further stress on alternative supplies.