The December CONAB report on Tuesday did not offer any major surprises, with Brazilian soybean production pegged at 109 MMTs, versus the range of 106-109 MMTs that was offered back in November. Area of 34.9 million hectares was little changed from the average November estimate, while the national yield forecast was increased 2% to 3,123 Kg/Ha (46.4 BPA). The far Southeast regions of the country are in dire need of rainfall with some areas seeing rainfall at just 25% (or less) of normal over, with similar conditions extending west into Argentina. Other key growing regions farther north have seen normal rains during the last 30 days. The USDA’s crop production estimate was held just under CONAB at 108 MMTs. Typically, the USDA waits until January to begin making yield adjustments, and often follows CONAB’s guidance in December. Since the 2 agencies are already using similar numbers, it would likely to a major weather calamity in the next month for the USDA to change their estimate of the Brazilian crop substantially.
When estimating soybean production in December over the last decade, there has not been a strong bias for CONAB to either over or under estimate production. The December production forecast has been too high in 5 years by an average of 5%, and too low in 6 years by an average of 6%. CONAB has consistently underestimated soybean area over the last 11 years, by an average of 1.3%. As seen in the chart, CONAB’s error in estimating production has been completely driven by the error in yield. Following 5 consecutive years of over estimating yield in December, last year CONAB’s soy yield estimate was 10% too low with the final yield up 17% year over year, and 9% over trend. The current yield estimate is down from a year ago, but right in line with the 30 year linearr trend.
In the soybean balance sheet estimate, CONAB estimated Jan-Dec soybean exports will total 64 MMTs, unchanged from the November estimate, but still down 2.5 MMTs from the current year exports of 66.5 MMTs. The USDA estimates the local crop year balance sheet on a slightly different schedule from Feb-Jan, but they are currently projecting a similar decline, with annual exports projected at 64.5 MMTs.
The CBOT soy trade continues to struggle with a number of concerns. The first is that Brazil’s yield could rise and that like last year, the final crop could be 3-8 MMTs larger. This would cut into US late season old crop and early season new crop exports.
The second is that it’s still very early in the growing season in a La Nina year. Today’s weather forecast projects rains over the next 2 weeks, which need to materialize, and then continue into March replicate last year’s big 9% above trend soy yields.
ARC expects the CBOT soy markets to remain sensitive to changing weather forecasts with support expected from $9.60-9.70 spot CBOT futures. The odds of a Jan/February weather rally is elevated.
