Aug. 1 (Bloomberg) -- South American farmers are preparing to plant record grain and oilseed crops that may temper surging food inflation caused by the worst U.S. drought in a generation.
Argentine farmers, buoyed by rains that alleviated a drought, will smash a previous corn harvest record of 22 million metric tons by reaping as much as 31 million tons in the 2012-2013 season, growers group Crea said July 23. Brazil may harvest its biggest-ever soybean crop in 2012-2013 to surpass the U.S. as the world’s biggest grower, according to Sao Paulo-based researcher Agroconsult.
Corn rose to a record $8.205 a bushel in Chicago yesterday, capping the biggest monthly gain since 1988, while soybeans reached an all-time high on July 23 and surged 15 percent last month. Corn retreated 1.2 percent today. The response from South American growers to the worst U.S. drought since 1956 will be the “turning point” in the corn and soybean rally, Wayne Gordon, the head of global agriculture markets research at UBS AG in New York, said in an interview.
“We are in a great situation,” said Martin Otero, the owner of Buenos Aires-based farm investment group Hillock Capital Management that owns and manages farmland in Argentina and Uruguay. “We have very high yield prospects, and there’s a high probability that prices will be very good.”
South America may boost its soybean crop by 30 percent in the 2012-2013 season as farmers look to cash in on higher prices and improved soil conditions after a drought last season, said Karim Cherif, a Zurich-based analyst for Credit Suisse Group AG.
Argentina and Paraguay are the world’s third- and fourth-largest exporters, respectively, of the oilseed behind the U.S. and Brazil. In corn, Argentina, Ukraine and Brazil trail the U.S. as the largest global exporters of the cereal. South American farmers start planting corn and soybean crops from September, while harvesting will take place between February and June next year.
In the U.S., whose season runs inversely to South America, the already planted corn crop is “not save-able” in many areas, economist Dennis Gartman wrote in his daily Gartman Letter. Ninety-four percent of U.S. corn crops have gone through the silking stage, while only 55 percent of soybean plants are setting pods, the U.S. Department of Agriculture said July 30. Both phases are critical for determining yields. Soybeans typically mature later than corn and damages can be reversed by rains now, Gartman said.
Much of the U.S. Midwest may remain hot and dry through the middle of August, Matt Rogers, Commodity Weather Group LLC president, said in an e-mail today.
Prices may advance to records on the shortage, said Sudakshina Unnikrishnan, an analyst at Barclays Plc in London.
“I don’t think we’ve seen the top so far,” she said in an interview. In the U.S. “weather through August is going to be absolutely crucial.”
The U.S. drought will cause food-price volatility that may expand hunger to the world’s poor, threatening social stability and putting pressure on governments, World Bank President Jim Yong Kim said in a report July 30. French Agriculture Minister Stephane Le Foll said a surge in grain and soy prices is a “major preoccupation” worldwide.
“South American farmers will respond to high crop prices by increasing planted acres,” Juan Luciano, chief operating officer of Decatur, Illinois-based grains processor Archer-Daniels-Midland Co. said in a conference call with analysts yesterday.
Brazilian farmers may plant a record soybean crop because of prices, the prospect of rain caused by the El Nino weather phenomenon and its higher profitability than corn, said Silvio Porto, the director of agriculture policy and information at Conab, the Brazilian government crop-forecasting agency.
Many Brazilian farmers will sow soybeans instead of corn because the seeds are cheaper and the cost of transporting from farms far from the eastern Atlantic coast is cheaper, said Glauber Silveira, a farmer who is also president of Brazil’s soybean growers association known as Aprosoja.
“You have more safety with soy, it’s easier to sell in advance,” said Silveira, who owns farms in Mato Grosso state that borders the Amazon Jungle. “I have already sold 60 percent of my crop next year in advance.”
Brazil will plant 27 million hectares (66.7 million acres) in 2012-2013 to reap a record 78 million-ton soybean crop and may even surpass that target as growers use record amounts of fertilizers to maximize yields, said Giovana Araujo, a Sao Paulo-based analyst at Banco Itau BBA SA.
To be sure, farmers across South America are counting on the downpours that arrive with El Nino that warms ocean temperatures, bringing wetter weather to the grassy plains in Argentina and Brazil.
The El Nino rains may be less intense than in previous episodes of the weather phenomenon, said Eduardo Sierra, a climatologist at the Buenos Aires Cereals Exchange. Many Argentine farmers need the heavy downpours that occur during the so-called Santa Rosa storm at the end of August to sow corn, said Esteban Copati, an analyst at the exchange.
Argentine farmers are still lobbying the government to ease export restrictions on food staples such as corn consumed in the South American country and may grow soybeans instead because they are not subject to the restrictions, Copati said.
The country’s soybean harvest may rise about 35 percent in 2012-2013 to 56 million tons, UBS’s Gordon said. Output in neighboring Paraguay may almost double to 7.8 million tons in the 2012-2013 season from 4 million tons a year earlier, the USDA said March 28.
“The Latin American guys are going to be the turning point,” Gordon said. “What the condition of their planting is in October and November will determine the length in the rally.”
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