Markets are making the same fundamental mistake with the South American corn and soybean crop outlook that they made with the U.S. corn crop last winter, says a major grains and oilseeds trader.
They are overly optimistic about what Brazil and Argentina will produce in 2013, said Jason Charles, who runs the export trading division of Land O’Lakes Inc., the second largest co-operative in the United States.
He is far more bullish than many other grain industry analysts about where corn and soybean prices are heading, due to what he considers to be an over-inflated South American production forecast.
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The trade is counting on a South American soybean crop of anywhere between 138 and 155 million tonnes, up from 115 million tonnes last year when dry weather shaved yields.
“When you set the bar that high it’s hard to do better,” Charles told delegates attending the Agri-Trend 2012 Farm Forum event in Saskatoon.
The U.S. Department of Agriculture is forecasting 150 million tonnes of soybeans, based on record crops in Brazil and Argentina.
It reminds Charles of the USDA’s dead wrong July forecast of a record 166 bushel per acre average yield for the U.S. corn crop. It came in at a disappointing 122 bu. per acre.
He sees no reason to justify that big of a jump in the South American soybean crop. In fact, the crop is off to a rocky start. Charles thinks South America will have a tough time meeting even the low end of the trade’s expectations.
The same goes for the region’s corn crop. The USDA forcasts a record 28 million tonne crop in Argentina, the world’s second biggest corn exporter behind the United States.
Charles said there has been severe flooding in some of the key corn producing regions of Argentina. He thinks the country’s farmers will be lucky to harvest 22 million tonnes of the coarse grain.
Agustin Bianchini, an agrologist from Argentina who spoke at the conference, agreed with Charles that the USDA’s forecasts are too optimistic.
He said all the rain in Argentina has reduced corn acreage and caused leaching of nitrogen fertilizer, which will further reduce yields.
Bianchini thinks no one should forecast record production this early in the season because the corn and soybean crops will be heavily dependent on how much moisture arrives in the period from late-December through the end of February.
Charles predicts South America’s corn and soybean crops will be much smaller than the grain markets are anticipating, which will result in higher prices than many are forecasting.
He believes corn prices will remain around $7 per bushel. That is a far more bullish outlook than what is being offered up by other analysts. Informa Economics believes corn could fall as low as $3.70 a bu. in 2013.
Look for more details on Charles’ presentation in the Dec. 6 issue of The Western Producer.
