May 2
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Alef Dias
Grains, Oilseeds and Livestock Weekly Report - 2024 05 02
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Chicharrita adds risk to Argentine Corn crop
- After a cycle marked by expectations of a recovery in Argentine corn production, the month of April brought significant concerns regarding the country's production due to a pest well known to Brazilian producers - the Chicharrita.
- During April, the Rosario Grain Exchange revised downwards its estimates for corn production in Argentina, reducing them by 6.5M mt. The Buenos Aires Grain Exchange (Bolsa de Cereales) made two cuts to its estimates this month, which amounted to a reduction of 4.5M mt.
- Despite the significant cuts, there is still room for further deterioration in estimates. Some local players are already talking about losses of around 10M mt compared to the stock exchanges' initial estimates, which could take total production below 45M mt.
- In short, South America should continue to provide support for Chicago corn, given that both the Argentine and Brazilian crops are still developing and need to be monitored.
Introduction
After a cycle marked by expectations of a recovery in Argentine corn production, the month of April brought significant concerns regarding Argentine production due to a pest well known to Brazilian producers - the Chicharrita. In this report, we'll discuss what the total impact on the crop could be and the consequences for the global corn market.
Impact of up to 10M mt
In April, the Rosario Grain Exchange revised downwards its estimates for corn production in Argentina, reducing them by 6.5M mt. This revision is mainly due to the damage caused by diseases transmitted by the leafhopper, also known as chicharrita in the region. The Buenos Aires Grain Exchange (Bolsa de Cereales) made two cuts to its estimates this month, which amounted to a reduction of 4.5M mt.
Fig. 1: Corn Argentina - Area, yield, production (M ha, ton/ha, M ton)
Source: USDA, Bolsa de Cereales
Despite the significant cuts, there is still room for further deterioration in the estimates. Harvesting is only at 19.8% of the area, and the latest crop progress report from the Bolsa de Cereales brought the percentage of good and excellent crop conditions down to below 60%.
Some local players are already talking about losses of around 10M mt compared to the initial estimates of local exchanges, which could take total production below 45M mt.
Fig. 2: Corn Argentina - Normal/excellent conditions (%)
Source: Bolsa de Cereales
Fig. 3: Soil moisture - southern Russia (% within the top 1 meter)
Source: Bolsa de Cereales
But why was the impact so severe?
In the current crop, there has been an increase in the incidence of leafhoppers in some regions of Brazil, especially in the south of the country. This phenomenon helps explain the infestation situation observed in Argentina and Paraguay.
The weather has also contributed to the increase in the pest. The leafhopper is an insect whose proliferation is closely linked to climatic conditions. Due to the not so low temperatures in winter and the high relative humidity, the population of this insect tends to increase, as these factors favor its population dynamics.
The weather has also contributed to the increase in the pest. The leafhopper is an insect whose proliferation is closely linked to climatic conditions. Due to the not so low temperatures in winter and the high relative humidity, the population of this insect tends to increase, as these factors favor its population dynamics.
In addition to the increase in the number of insects in the country, another factor that contributed greatly to this problem was that the leafhopper appeared in regions where it was not common, taking local producers by surprise.
Fig. 4: Temperature observed in the last 60 days (difference from normal, ºF)
Source: WorldAgWeather (corn production shown internally)
In summary
With the uncertainty surrounding the total amount of corn to be harvested, a slowdown in sales by Argentine producers can be expected, so the pace - which is still close to the lows of the last five years - is under threat. In addition to the slow pace of sales, the percentage of sales with fixed price is also below the levels seen in previous seasons, a clear sign of a more uncertain scenario.
And demand for Argentine corn should also contribute to this scenario of the country's lower participation in global trade, given that local prices have already been heavily impacted by the "plague", with the basis in Argentina reaching the highest levels in the last five years. And the expectation of additional production cuts should support them for the next few months.
The macroeconomic side may alter this scenario a little, but the spread between the parallel and official exchange rates has not moved much in recent weeks, and today it is much lower than at the end of last year, so new devaluations tends to have less impact.
The repercussions of this problem could also extend to the next crop, which will begin to be sown in Argentina between August and September this year. Argentine producers may opt to reduce the area planted, given that there is no effective technological solution to combat the leafhopper. In short, South America should continue to provide support for Chicago Corn, given that both the Argentine and Brazilian crops are developing and need to be monitored.
The repercussions of this problem could also extend to the next crop, which will begin to be sown in Argentina between August and September this year. Argentine producers may opt to reduce the area planted, given that there is no effective technological solution to combat the leafhopper. In short, South America should continue to provide support for Chicago Corn, given that both the Argentine and Brazilian crops are developing and need to be monitored.
Fig. 5: Corn Argentina - Farmer Selling (%)
Source: MAGyP
Fig. 6: Corn Basis - Upriver, Argentina (USDc/bu)
Source: hEDGEpoint Global Markets, CME, ESALQ
Source: USDA
Weekly Report — Grains and Oilseeds
Written by Alef Dias
alef.dias@hedgepointglobal.com
Reviewed by Thais Italiani
thais.italiani@hedgepointglobal.com
thais.italiani@hedgepointglobal.com
www.hedgepointglobal.com
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