Rabobank Says Crop Prices May Gain on South America Delays

Corn and soybean prices may rebound on South American planting delays, Rabobank International said.

Seeding has slowed because of a late start to the wet season in northern Brazil and excess rain in southern Brazil and Argentina, analysts Erin FitzPatrick and Nick Higgins said today in an e-mailed report. Corn and soybean prices may reach record highs in a “worst case scenario,” they said. U.S. Department of Agriculture production forecasts for South America are too high, according to the report.

Corn has dropped 12 percent since U.S. drought concerns sent prices to a record $8.49 a bushel on the Chicago Board of Trade in August. Soybeans are down 13 percent from a record $17.89 a bushel in September.

“We believe current prices do not reflect the production risks,” FitzPatrick and Higgins said. “Although we believe there is still potential for USDA’s optimistic production estimates for South America to be realized, it will require an improvement in South America’s weather conditions to near perfect.”

Brazil may produce 79.8 million metric tons of soybeans this season, 20 percent more than last year when crops were damaged by drought, FitzPatrick and Higgins said. The USDA, which expects Brazil to overtake the U.S. as the world’s biggest soybean grower, has pegged the country’s crop at 81 million tons. Rabobank estimates Argentina’s soybean harvest at 54.6 million tons, less than USDA’s forecast at 55 million tons.

Soybean Estimates

Farmers in Brazil may harvest soybeans on 26.9 million hectares (66.5 million acres), Rabobank said. Twenty percent of the country’s crop has been planted. While the bank forecasts yields at 2.9 tons per hectare “without improved precipitation in coming weeks, further yield downgrades will be needed,” FitzPatrick and Higgins said. Argentina may harvest 19.5 million hectares with yields of 2.8 tons a hectare, they said.

“Considerable uncertainty remains as soybean plantings have barely started in Argentina, and excess moisture has delayed corn plantings which could result in further acreage increases for soybeans,” FitzPatrick and Higgins said. “However, if precipitation continues above average levels, there may be downward revisions to total row crop area.”

Corn production may total 73.3 million tons in Brazil and 25 million tons in Argentina, they said. That compares with USDA estimates of 70 million tons for Brazil, the third-biggest exporter, and 28 million tons for Argentina, the second-largest.

‘Worst Case’

If weather deteriorates, combined soybean output in Brazil and Argentina may total only 120 million tons while corn production in the two countries may slide to 88 million tons, Rabobank said. “Worst case production” may boost corn prices by 90 cents a bushel and boost soybeans by $2 a bushel, according to the report. Corn for December delivery was at $7.435 a bushel today on the CBOT and January-delivery soybeans were at $15.60 a bushel.

“Given it is still planting season in South America, there remains time for crop expectations to improve,” FitzPatrick and Higgins said. “However, because of already high price levels due to reduced U.S. supplies, if South America’s output does not increase year over year as forecast, our price scenarios are for CBOT corn and CBOT soybean prices of record levels.”

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