The USDA report on Monday provided no additional changes to Brazil’s 23/24 crop season. They did reduce Argentina’s soybean production by 0.5 million metric tons and their corn production by 2 MMT.

CONAB released their August update a day after the USDA, where they reduced Brazil’s corn production estimates by 0.2 MMT placing them at 115.6 MMT compared to the USDA at 122 MMT. CONAB boosted corn acres by 250,000 but reduced production in Parana where later planted fields saw yields drop more than expected.

Both agencies have plenty of yield data at this point as all the regions that really matter have wrapped up corn harvest with remaining areas to be harvested falling within the “fringe” areas.

This leaves us with a 6.3 MMT gap between USDA and CONAB crop estimates. It appears it will go unreconciled.

U.S. corn exports remain favorable

CONAB did increase their corn export predictions by 3 MMT, taking them to 36 MMT. We feel that additional increases to their exports are warranted and may eventually end up closer to 40 MMT. The second half of the year is when the bulk of Brazil corn exports take place as their corn harvested in July and August begin arriving at the port for shipment.

On the other hand, U.S. Free on Board prices remain competitively priced compared to Brazil and Ukraine. Spot premiums are over a dollar per bushel over Chicago in Brazil and Ukraine is nearly $1.50 over.  Meanwhile, U.S. Gulf prices are hovering around $0.85 over. This is a strong indication that U.S. corn exports will remain favorable and reach USDA targets.

With soybean prices collapsing, there will need to be an adjustment to our cost of production next year. Brazilian farmers have likely made input commitments already that reflect prices from six months ago. Their cost structure is already underwater, and they know it. They will not be looking to expand on any marginal acres.

Perhaps that is not very reassuring to U.S. growers, but misery does love company. If it is tough for us, you can be sure it is tough for them.

Will acreage expansion continue?

By next month focus will shift towards Brazil’s planting season. There will be much speculation surrounding how many acres of soybeans they will add. To reach the USDA’s lofty goal of 167 MMT for Brazil’s soybean production next season, they would have to increase acres by 4% assuming a trendline yield of 52 bushels per acre.

At first glance, a 4% increase would not appear out of the ordinary as they average a twenty-year growth of 5.4% in year over year acreage growth. But this is not a normal year for the reasons mentioned above.

Farmers are going to pull back on expansion plans. It is very possible that there could be no increase to acreage which will still see production increase to nearly 161 MMT. As a friend of mine put it, there are some farm production projects that are new and are flush with cash. They will be moving forward on expansion plans. But the vast majority of established growers will likely be limited by their cash flow.

We see any increase in acreage as being modest at around 1% growth. While this would be a record crop of 162.5 MMT, it is 4.5 MMT below the USDA predictions.

Matthew Kruse is President of Commstock Investments. Subscribe to their report at www.commstock.com.

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