March 16, 2017 / 9:11 AM / 3 years ago

South American corn in great shape but not in the bag yet: Braun

CHICAGO (Reuters) - The South American corn crop has been consistently underestimated at this time of year by many analysts, though it is still unclear whether this trend will hold again this year.

Within the past week, several groups – including the U.S. Department of Agriculture, Brazil’s agricultural statistics agency Conab, and Argentina’s Rosario Exchange – boosted outlooks for the 2016/17 corn harvests in Brazil and Argentina.

In its March reports over the past 14 years, USDA has overestimated the eventual Brazilian corn crop only twice, and it has overestimated for Argentina twice in the past 18 years. The two countries are heavily relied upon as top corn exporters, so an underestimation of their crops would be noticeable to market watchers.

Given the prediction tendencies and the current crop conditions, it would seem a great bet to assume that corn output could rise above USDA’s 91.5 million tonnes in Brazil and 37.5 million tonnes in Argentina – both of which would easily top records.

But even though the upside scenario seems more likely than the downside, it is important not to dismiss the issue too soon as the South American corn harvest is not yet in the bag.

MARCH IS TOO EARLY FOR BRAZIL

As of March 9, Brazilian farmers had planted 88 percent of the second-crop corn, known as safrinha, which is about 5 percent ahead of average pace. Safrinha accounts for about 67 percent of the country’s total corn output.

The planting progress in Brazil would compare to the third or fourth week in May for the U.S. corn season, which most analysts would claim is far too early to make any conclusions about yield there. USDA does not even give an objective assessment of U.S. corn yield until August.

With two-thirds of Brazil’s corn crop currently in its infancy, cautious optimism is the best approach for now in setting yield targets.

It is not completely unreasonable to assume a safrinha yield slightly above the long-term trend, though, since early planting in Brazil is generally tied to better yield outlooks later on since dry season sets in during the second corn cycle.

The wet season for central and southern Brazil – where most of the safrinha corn is grown – starts to taper after March and the dry season generally settles in by June. But the harvest lasts from June through August, placing heightened importance on rainfall early on.

Based on Brazil’s crop schedule, the last safrinha field will be harvested five months from now – so getting too comfortable with the idea of big crops at this point might prove premature.

Last year, Brazil endured one of its worst-ever safrinha harvests due to drought. But in March 2016, both USDA and Conab increased their crop pegs from the previous month – a demonstration of just how early in the season it still is.

For Argentina, the higher March estimates likely carry more weight than those for Brazil since Argentina’s corn harvest should wrap before Brazil’s begins. More of the Argentine crop is already made at this point and there is less time for something to go wrong, in theory.

GOOD SO FAR BUT NOT PERFECT

There is reason thus far to bake in some upside to the South American corn number, though some potential risks exist in both countries.

Crop vegetation density implied by satellite imagery is at or near record highs in Argentina, suggesting crops there are likely in great condition (reut.rs/2noDHIv).

The same analysis in top safrinha producer Mato Grosso in Brazil reflects the rapid planting and harvest pace as well as the elevated crop conditions for full-season corn and soybeans. Vegetation density does not yet reflect the conditions of the safrinha crop in the state since planting is wrapping up now and emergence is in progress (reut.rs/2noxe0c).

Drier-than-usual weather has been something of a theme in Brazil’s Center-West and Southeast, but it has not been prolonged or extreme enough to harm crop production – yet.

In Mato Grosso, total rainfall amounts have been running at a deficit compared with normal levels since the beginning of the year. According to Thomson Reuters data, the soil moisture levels in the state for the month of February were about the same as in February 2016 – prior to the onset of the damaging drought.

Farther south, dryness has not been an issue this season in states such as Paraná.

Weather models show that slightly below-average precipitation totals are likely to be maintained across the Center-West region in the near term, but the outlook is not alarming. These forecasts should be closely watched in the coming months – especially as dry season approaches.

Over the next few months, the possible early emergence of an El Niño-like atmosphere – which can present dry weather to central and northern Brazil – is worth bearing in mind. But for now, the risk seems fairly low as the crop has gotten off to an early and good start and El Niño may not come on until mid-year or later.

Excessive rainfall in Argentina earlier this season had the industry on alert, but the short-term forecast shows some considerable dryness settling in across the core region.

This is the preferred scenario for corn at this point since drier conditions lead to more efficient harvesting. But the return of a late-season deluge à la 2016 would certainly command the attention of the corn market – and the soybean market for that matter.

WHERE TO FOCUS AND WHEN

On average over the past few years, some 93 percent of Brazil’s safrinha production has been concentrated within four states: Mato Grosso (40 percent), Paraná (24 percent), Mato Grosso do Sul (17 percent), and Goías (12 percent).

For the first-crop corn now being harvested, the southeastern state of Minas Gerais leads the way with 20 percent of the crop, followed by Paraná and Rio Grande do Sul at 17 percent each.

Brazil’s first-crop corn harvest should wrap up by the end of April. Safrinha corn will enter its critical pollination period at some point in April or May – although some earlier planted fields could begin late this month – and the second corn harvest will run from June to August.

In Argentina, the provinces of Córdoba and Buenos Aires have been the top corn producers at 29 and 28 percent, respectively, of the total harvest in recent years. Santiago del Estero and Santa Fe are the other heavy corn players at 12 and 11 percent each.

The northern Argentine provinces – Santiago del Estero, Salta, and Chaco – are more instrumental in the country’s corn production than its soybean effort. The three combine for about 20 percent of national corn output compared with 8 percent for soybeans.

Argentina has just begun harvesting its corn crop, and the harvest period will continue through the end of May.

(The opinions expressed here are those of the author, a market analyst for Reuters.)

Editing by Matthew Lewis

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