Even though the 2022/2023 crop season is approaching its end, market participants will still have very good reasons to divide their attention between production projections for the U.S. new crop and the estimates for current South American corn and soybean production.

The fact that USDA did not change its estimates for Argentine corn and soybean production during the current 2022/2023 season was one of the biggest surprises of the May WASDE report. USDA decided to leave its estimates unchanged at 37 million metric tons for corn and 27 MMT for soybeans, while the trade estimates ranged from 33-37 MMT and 22-26 MMT, respectively.

The decision to keep the production estimates at their previous levels was even more surprising when we consider that crop conditions had worsened in Argentina between April and May, which led local agencies to show cuts in their estimates close to the release of the May 12 WASDE report. For instance, on May 11, the Rosario Board of Trade (BCR) cut its soybean production estimates by 1.5 MMT to 21.5 MMT and left the corn estimate at 32 MMT, still 13.5% below the USDA’s number.

Will USDA’s estimates in June “converge” to values closer to the estimates released by local agencies or within the previous trading range? The answer is: not necessarily!

If we compare last year’s final production values for corn production in Argentina and Brazil (see charts below), we will find that USDA numbers are still very different from the estimates of local agencies. Compared to CONAB’s estimates, USDA appears to be overestimating Brazilian corn production for the second year in a row. For soybeans, the USDA and CONAB have similar estimates for the current crop year but had a 4.95 MMT difference last year. All agencies had similar final production estimates for Argentina last year, but the variation for the current crop year has become as wide as 22% (USDA versus BAGE).

Corn production estimates for Argentina: 2021/2022 and 2022/2023. Source: USDA, Argentina Ministry of Agriculture, Livestock and Fishery (MAGyP), Buenos Aires Grain Exchange (BAGE), Rosario Board of Trade (BCR)

Soybean production estimates for Argentina: 2021/2022 and 2022/2023. Source: USDA, Argentina Ministry of Agriculture, Livestock and Fishery (MAGyP), Buenos Aires Grain Exchange (BAGE), Rosario Board of Trade (BCR)

Corn production estimates for Brazil: 2021/2022 and 2022/2023. Source: USDA, National Supply Company (CONAB)

Soybean production estimates for Brazil: 2021/2022 and 2022/2023. Source: USDA, National Supply Company (CONAB)

Differences in production estimates will likely result in different balance sheet outcomes for two of the world’s most important producers of corn, soybean, soybean oil, and meal. Imports and exports of products to and from Argentina and Brazil can also impact international trade and bring more price volatility to the markets. For instance—and especially for Argentina—lower production would mean higher soybean imports for companies in the country to crush and export oil and meal. The market will very closely follow the soybean crush outcome in Argentina since the country is expected to be the main oil and meal exporter in the world in 2022/2023, with a projected 33.7% and 36.5% market share, respectively.

With the drought problem in Argentina, the soybean industry in the country has had a tough start in 2023, showing its lowest crush level since 2013, far below its five-year average.  

Soybean crush in Argentina during the 2018-2023 calendar years. Source: MAGyP

The main consequence of another year of low soybean production in Argentina is the increase in the country’s imports. The USDA estimates that Argentina’s imports will reach 8.3 MMT in 2022/2023, which is nearly 2.2 times more than in 2021/2022, and close to 30% higher than the previously highest imported volume in the 2018/2019 crop year. Between July 2018 and March 2019, Argentina imported 2.2 MMT of soybeans from the U.S. More recently, all imports have come from its neighboring countries, mainly Paraguay and Brazil, where prices are currently much more competitive than in the U.S.

Argentina’s soybean imports by country: 2017-2023. Source: MAGyP

It appears that more will happen in South America before the 2022/2023 season ends, and we all must continue to observe and compare the final values released by local agencies and the impact that the coming WASDE reports will have on the market—which will likely be significant. For the 2023/2024 season, without a La Niña weather pattern, we can expect new combined record corn and soybean production from Argentina, Brazil, and Paraguay.

At the end of the day, the outcome for the South American balance sheet remains open for 2022/2023, and increased price volatility is likely to affect the market for the remainder of the crop year. Hedging your position is therefore critical, as price movements remain unpredictable.

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