Two important Brazilian corn and soya producers Parana and Rio Grande do Sul made sharp cuts to crop forecasts on Thursday after weeks of harsh, dry weather dented prospects for a soya crop that as recently as this week some still expected to be a record.
Brazil's biggest soya state Mato Grosso which grows nearly a third of the crop has been spared weather havoc this year but traders are closely watching losses in other states and in Argentina. Markets grow more tense with each dry day. Just three weeks since its last forecast, Parana's Rural Economy Department, Deral, lopped 1.4 million tonnes off its outlook for soya and 1 million off corn, equating to nearly 2 percent and 1.6 percent of national output respectively.
Parana, a southern state, has borne the brunt of a prolonged dry spell in what is usually a wet summer season due to the influence of the La Nina weather anomaly, which the US Climate Prediction Center said could last until May. "Since November, due to the effect of La Nina, the state has been receiving below-average rain, which has compromised the harvest," said Margorete Demarchi, agronomist at Deral. She said the worst-hit areas saw a third of average December rainfall.
La Nina, which can last for several years, is the opposite number of the more infamous El Nino anomaly and is caused by an abnormal cooling of waters in the equatorial Pacific Ocean. Its effects are being felt keenly across Latin America, where estimates for the 2011/12 corn crop from Argentina have been slashed by as much as a fifth, while Brazil's soyabean crop is also withering due to a prolonged dry spell.
Rio Grande do Sul State, ranking third for soya nationally and fifth for corn, slashed its own corn forecast by 25 percent to 3.96 million tonnes and its soya estimate by 4 percent to 9.8 million tonnes, having seen barely any rain for weeks. Crop losses in Brazil are feeding into a grain futures rally. The market is very focused on dryness in Argentina that could yet bring a repeat of a devastating 2009 drought and has already claimed about a fifth of its corn and threatened its soya.
Chicago's CBOT corn futures have rallied about 15 percent and soyabeans about 13 percent from their respective mid-December lows. Brazil is the world's No 2 soya producer after the United States and Argentina No 3, but jointly they provide the world's biggest supply of the oilseed. Oilseeds analyst Anne Frick at Jefferies Bache said the market had been expecting cuts to Brazil's grains forecasts.
"I don't think it was a big shock because people were aware that the (soyabean) crop in Parana was not yielding well, for the early harvest," she said. "In the last few days you've seen some pretty high crop estimates for Brazil, despite the dryness in Parana and Rio Grande Do Sul. There is just a lot of uncertainty."
Anticipating problems from La Nina, Brazil's government in November forecast a drop as big as 5 percent in soya output this year and its updated December estimate was for 71.3 million tonnes, down from a record 75.3 million tonnes in 2010.
Private sector analysts dismissed the estimate as conservative and this week the national grains industry association stuck to forecasts for record output of 74.6 million and 75.6 million tonnes in turn. The grains association Abiove said it had not been able to measure the impact of the dry weather, suggesting a downward revision to its forecast may soon follow.
Parana state's official forecast now stands at 12.73 million tonnes for soya, down from its December forecast of 14.12 million tonnes. Its lowered corn estimate is now 6.4 million tonnes, compared with 7.4 million tonnes forecast in December. It estimates the value of the lost production at about 1 billion reais ($543.80 million).
Local meteorologists Somar forecast Thursday the southern region would remain mostly dry apart from a very light sprinkle of rain in parts of Parana and Mato Grosso do Sul. The weather could also turn hotter there. In its extended forecast, Somar predicted rains would fan out across the south of the country between January 9 and 13, but cumulative volumes would be light with no more than 15 millimeters (0.6 inch) in any one area.
Top soya state Mato Grosso is right at the outset of its harvest and after generally good rainfall there, it now needs dry weather to enable harvesters to sweep over the fields. Rio Grande do Sul state's crop could still dodge major losses if rains reach it in time to catch seeds in the germination phase.