Weekly Insights: Argentina Weather
Over the last week, the benchmark corn contract fell from $5.25 per bushel below $5 and then rose back to test the life of contract high. Soybean futures moved close to the same pattern, with the benchmark contract falling from $13.75 to test $13, before rising back to $13.75 per bushel. Last week’s report detailed the improvement in Argentine growing conditions that triggered fund liquidation, driving prices lower. However, the record low stocks-to-use forecast for U.S. soybean stocks and projection of the lowest stocks-to-use level for U.S. corn stocks since 2013/14 contributed to the rally from the lows.
Whether the rally is the proverbial “dead-cat bounce” or the beginning of the next leg higher will depend on two factors. The most obvious is growing conditions in Argentina, which remain critical for the corn and soybean markets over the next two weeks and the wheat market in the longer term. The other factor is the continued strength in demand for corn and soybeans, particularly from the export market, where importing countries treated the sell-off like a “Black Friday” sale.
This week, Higby Barrett will provide another update of Argentine crop condition and examine the potential implications for Argentine corn and soybean yields. While farmers plant Argentine crops on a broader timeframe than U.S. crops, weather conditions during critical months still play a substantial role in determining yields.
In February, rainfall is critical for pod filling in the major soybean growing areas. Given the slower-than-normal planting progress this year, rainfall in March will likely play a larger role in determining yields than it typically does. Still, rain in February is likely to impact yields substantially. As shown in the accompanying chart, the average daily rainfall in February correlates with the deviation from the trendline for yields. The latest forecast extends through February 12 and suggests an improvement in average daily rainfall in the major growing areas, if the trend were to continue, it would suggest yields slightly above trend.
Argentina Crop Area (Avg. Daily Rainfall)
Argentina Soybean Yield Deviation from Trend Versus February Rainfall
There has been some moderation in sea surface temperatures, particularly in the critical 3.4 region. However, the National Oceanic and Atmospheric Administration’s (NOAA) latest El Niño South Oscillation (ENSO) analysis, released on January 14, predicted a 95% probability of La Niña conditions continuing through March. The forecast predicts a 55% probability of a transition to ENSO-neutral conditions in the spring (April – June). If the change occurs earlier than expected, it could improve the opportunity for rainfall in critical Argentine growing areas in time to impact yields, given the fact the crop will be filling pods later than usual.
Change in Weekly SST Anoms (C) (January 20, 2021 minus December 23, 2020)
As of January 27, the Rosario Grain Exchange (RGE) reported farmers completed planting the first and second soybean crops. The estimate was in line with last year and the five-year average for the week. RGE estimated 71.9% of the first crop was beginning to bloom compared with 81.8% last year and the five-year average of 82%. Only 23.8% of the first crop was setting pods, versus 41% in the prior year and the five-year average of 41.4% For the second crop, just 11.3% of the crop was blooming compared with 24.9% last year and the five-year average of 21.5%.
REG rated 18% of the crop
in good or excellent condition, 69% fair, and 13% poor. REG rated 21% of the crop in good or excellent condition in the prior week, 69% fair, and 10% poor. Crop condition ratings were substantially below last year when REG rated 66% of the crop as good or excellent, 34% fair, and less than 0.5% poor.
The decline in ratings reflected a drop in soil moisture conditions, with REG estimating 76% of crop areas with optimum or favorable soil moisture and 24% poor or dry, compared with 87% optimum or favorable and 13% poor or dry and less than 0.5% wet, in the prior week. However, both weeks were well below the same week last year when REG estimated 96% of the area had optimum or favorable soil moisture, slightly less than 4% poor or dry, and less than 0.5% wet.
The Argentine corn crop typically pollinates during January. While there is still plenty of time for yields to improve or decline after pollination, weather conditions during pollination define the crop’s potential yield. Late planting resulted in a smaller percentage of the crop pollinating during January than usual. Still, enough of the crop has pollinated that the temperatures over the last four weeks will likely impact final Argentine yields. The correlation between average daily maximum temperature and the deviation of the final yield from the trendline is not as strong as rainfall during pod filling for the soybean crop. However, it still provides some insight into the potential for Argentine production. As shown in the accompanying chart, the average daily maximum temperature across Argentine growing regions was generally in line with temperatures over the last five years, but above 2020. That said, the increase only implies a small deviation from the trendline, suggesting rainfall during grain filling will play a more significant role in determining the crop’s size than it would in years with extreme temperatures.
REG estimated farmers planted 95.8% of the early corn crop, as of January 27, compared with 95% last year and the five-year average of 96.2% REG reported farmers finished planting the late corn crop, which was in line with the previous year’s pace but ahead of the five-year average of 98.4% REG estimated 64.8% of the early crop had pollinated compared with 74% last year and the five-year average pace of 68.6% Only 7.4% of the late crop had pollinated, well below 16% last year and the five-year average rate of 28.4% The early crop was also behind in silking at 62.3% versus 72% in the prior year and the five-year average of 65.2% REG estimated 34.9% of the early crop was filling grain, down from 44% last year and the five-year average of 41.6% Only 0.2% of the late crop was silking, well below 6% for the same week in the previous year, and the five-year average of 28.4%
Corn crop condition ratings deteriorated with just 22% of the crop rated good or excellent, down from 28% last week and 59% last year. REG estimated 68% of the crop was fair and 10% poor or very poor, rising from 64% fair and 8% poor or very poor in the prior week. The crop condition ratings separated further from the prior year when REG estimated 59% of the crop as good or excellent, 39% fair, and only 2% poor or very poor.
Argentina Corn Yield Deviation from Trend Versus January Temperature
The soil moisture levels reflect the drop in condition ratings, with 85% of the crop rated optimum or favorable and 15% poor or dry, down from 93% optimum or favorable and only 7% poor or dry in the prior week. Last year, REG judged 91% of the crop area had optimum or favorable soil moisture, 8% poor or dry, and 1% wet. If the projected rainfall totals verify, HigbyBarrett would expect soil moisture levels and crop condition ratings to improve in the coming weeks. However, with the crop so far behind the average pace of development, late-season dryness could be a factor, even if La Niña conditions fade in the coming months.
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