Evening Report | November 28, 2023

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MB Agro: Brazil lost 10 MMT of soybean production potential... Brazilian farmers are expected to produce 10 MMT less soybeans than initially forecast after a drought slammed Mato Grosso, said Alexandre Mendonça de Barros, partner at MB Agro consultancy. It now forecasts Brazilian soybean production at 155 MMT. According to Barros, the sharp drop in soybean production expectations is due to “the worst start to the harvest I have seen in 30 years in Mato Grosso,” Brazil’s largest production state.

“I think the worst moment is behind us,” Barros said in reference to the El Niño climate phenomenon, which made rains scarcer and more irregular in central and northern growing regions of the country while causing heavy downpours in the south.

Brazilian soybean production forecasts are extremely wide given the erratic first two-plus months of the growing season, ranging from 155 MMT to 165 MMT.

MB Agro expects Brazil to export 96 MMT of soybeans in 2023-24, down 4 MMT from its previous outlook.

Argentine farmers cheer Milei victory... Argentine farmers see a window of opportunity with the election of Javier Milei as the country’s new president. Milei will assume power on Dec. 10 with the promise to scrap currency controls and to “dollarize” the Argentine economy, which would devalue the peso. South American crop consultant Dr. Michael Cordonnier said, “All this currency uncertainty is going to cause short term “pain and suffering” for the average wage earner in Argentina, but it is probably good news for farmers who are still holding gain, which is priced in dollars, but paid in the local currency.”

Longer-term, Milei has also promised to eliminate export taxes on agricultural commodities, but that might be difficult to accomplish because he would need the approval of Congress.  The current export tax is currently 33% for soybeans, 31% for soybean meal, 31% for soybean oil, 12% for corn, wheat and grain sorghum, 7% for sunflowers, and 5% for sunflower oil.

Some analysts predict the combination of a devalued peso and elimination of the export tax could result in doubling the price Argentine farmers receive for their soybeans. If it happens quickly, Cordonnier says that might be incentive for farmers to switch some of their 2023-24 intended corn and sunflower acreage to soybeans.

Cotton a big winner in Brazilian acreage situation... Brazilian farmers are expected to increase their cotton acreage for 2023-24 by 14% to 1.94 million hectares due to better returns, especially in Mato Grosso, according to Agroconsult. Approximately 10% to 13% of the cotton in Mato Grosso is planted as a full-season crop with the remainder planted as a second crop following soybeans.  In 2023-24, the amount of cotton planted as a full-season crop could be as high as 20% because some farmers may not replant their drought-impacted soybeans and plant one crop of cotton instead. Farmers would prefer taking their chances for a good crop of cotton instead of uncertainties with soybeans and then not having time to plant safrinha corn or cotton.

SovEcon expects smaller Russian wheat crop in 2024... Black Sea consulting firm SovEcon’s initial forecast for Russia’s 2024-25 wheat crop calls for production to slip to 89.8 MMT from 91.5 MMT this year. Planted area is forecast to decline by 300,000 hectares to 29.5 million hectares, while the average yield is expected to inch down to 3.04 MT per hectare from 3.07 MT per hectare this year.

SovEcon says the expected yield drop is due to a likely return to “average” weather and a decline in crop input applications as farmers will be cutting costs substantially amid declining margins.

SovEcon said, “Despite a year-on-year decline, the 2024 crop could be still well above the five-year average of 86.4 MMT. With high 2023-24 carryout stocks Russia could remain a top world wheat exporter in 2024-25 unless we see some additional government restrictions and/or abnormal weather conditions during the next six months.”

USDA invests $196 million to strengthen food supply chains... In an announcement made during the inaugural meeting of the White House Council on Supply Chain Resilience, President Joe Biden and Ag Secretary Tom Vilsack revealed USDA is investing nearly $196 million in 185 projects across 37 states and Puerto Rico. These investments aim to strengthen American food and agriculture supply chains, expand markets for agricultural producers, and reduce food costs. Some highlights of these investments include:

• Lone Star Bakery in Texas will receive a $40 million Food Supply Chain Guaranteed Loan to modernize facilities and meet the needs of its customers.
• Merchant’s Garden LLC in Arizona will utilize a $250,000 Value-Added Producer Grant to expand marketing and sales of prepackaged salad mixes, becoming a local supplier of organic leafy greens.
• Lot 279, LLC in Nebraska will use a Value-Added Producer Grant to process, market, distribute, and advertise their direct-to-consumer beef cattle cuts and shares, increasing revenue and expanding their customer base.
• The Center for EcoTechnology Inc. in Massachusetts will receive a $24,355 Rural Business Development Grant to support small farmers in decarbonizing their farmwork through outreach, technical assistance, training, and education.

USDA is utilizing various programs to create economic opportunities in rural areas, including Rural Business Development Grants, Value Added Producer Grants, Business and Industry Loan Guarantees, the Food Supply Chain Guaranteed Loan Program, and the Rural Economic Development Loan and Grant Program. These initiatives aim to boost rural businesses, promote economic development, and contribute to the resilience and diversity of the U.S. food supply chain.

Fed’s Bowman, Waller have differing opinions on monetary policy course... Federal Reserve Governor Michelle Bowman said more rate hikes will be needed if progress on taming inflation stalls out. She said, “My baseline economic outlook continues to expect that we will need to increase the federal funds rate further to keep policy sufficiently restrictive to bring inflation down to our 2% target in a timely way,” in a speech in Salt Lake City, Utah. “However, monetary policy is not on a preset course, and I will continue to closely watch the incoming data as I assess the implications for the economic outlook and the appropriate path of monetary policy.”

Federal Reserve Governor Christopher Waller said, “Inflation is still too high, and it is too early to say whether the slowing we are seeing will be sustained. But I am increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2%.”

Efforts to refill SPR facing delays... Some companies, including Shell, TotalEnergies, and Chevron, have postponed returning borrowed barrels to the Strategic Petroleum Reserve (SPR). These firms participated in an exchange program over the past two years, and while they were initially scheduled to repay the borrowed crude this year and next, they received approval to delay the returns until 2024 and 2025, per government documents. Only Phillips 66 has completed its repayment so far, but due to accounting maneuvers, it didn’t add any barrels to the reserve. The U.S. emergency stockpile has been significantly depleted, and replenishing it is proving to be a slow process.