Marketing
As North American producers prepare to harvest what’s projected to be a bin busting crop, South American producers are praying for rain as their planting season rapidly approaches. Unfortunately, South American agricultural regions are bracing for an intensification of already historic drought conditions as the climate system shifts toward La Niña, which is now likely to develop during the Northern Hemisphere winter of 2024-25. The US’ National Weather Service (NWS) issued a La Niña Watch earlier this summer with a 66% chance of La Niña emerging between September and November 2024, increasing to 74% by winter, adding insult to the injury following months of persistently dry weather that has already stressed the key coffee crop in Brazil and Argentina.
The drought gripping South America has already been the worst in more than four decades, with key agricultural regions of Brazil experiencing their driest conditions since 1981. Rainfall from May through August has been sparse, and forecasts indicate little to no improvement over the next two weeks, especially in central Brazil and Argentina, an area that produces more Corn and Beans than the US. According to Cemaden, Brazil's natural disaster monitoring center, the lack of rain is expected to persist through mid-September with no relief forecasted so far.
La Niña Watch and the Likelihood of Onset
The Climate Prediction Center (CPC) and other climate models suggests that La Niña is increasingly likely to emerge in the coming months, with the odds favoring its persistence into early 2025. As sea surface temperatures (SSTs) in the equatorial Pacific Ocean continue to cool, particularly in the eastern Pacific, the likelihood of below-average SSTs expanding westward has increased. These conditions are consistent with La Niña’s influence, which tends to bring drier weather to South America, particularly in southern Brazil and Argentina.
Subsurface cooling has also been observed, further supporting the forecast of La Niña development. Oceanic Kelvin waves have shown alternating warm and cold phases, with the latest cooling phase dominating the east-central Pacific. With easterly wind anomalies and suppressed convection across the Pacific, all signs point to the onset of a weak-to-moderate La Niña event.
Brazil, the world’s top exporter of soybeans, is already facing delays in planting as abnormally dry conditions persist across the central and southern regions. Soybean planting, which typically begins in mid September in the key regions of Mato Grosso and Mato Grosso do Sul, is already expected to be delayed by weeks. The absence of significant rainfall could force many farmers to postpone planting until October, which may impact yields later in the season. The high temperatures forecasted for southern Mato Grosso and Mato Grosso do Sul, with highs exceeding 100°F, further complicate the situation.
According to meteorologists, a pattern change will be necessary by early-to-mid October to facilitate normal seeding dates. If the rains do not arrive, the delay in soybean planting could also push back the planting of corn and other crops, resulting in a shorter growing season. For now, long range forecasts suggest that rains should return in mid-October, but there’s low confidence in those forecasts so far.
In Argentina, where corn and soybean crops are a cornerstone of the agricultural economy, the outlook is also concerning as La Niña-induced dry weather has historically affected Argentina more often than Brazil, especially as the season enters critical planting and development stages. Argentina has already been grappling with dryness in its wheat-growing regions, and the forecast for September suggests that conditions will worsen as La Niña sets in.
What does it mean for Farmers?
The ongoing drought in South America, combined with the potential onset of La Niña, could create an unforeseen opportunity for North American producers. As Brazil and Argentina struggle with some increased likelihood of reduced yields, the U.S. may get an opportunity to increase their share of global demand for its agricultural products. Already, China has been steadily booking U.S. soybean shipments, a trend that is expected to continue if fears are realized that South America’s supply is crimped.
Disclaimer: Commodity trading, including futures, hedging and speculating, involves substantial risk of loss and may not be suitable for all investors. The material provided is for informational purposes only. It is not intended to be a substitute for specific risk management, consulting or any other professional advice. Neither Farmer's Business Network, Inc. nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in the material and any liability therefore is expressly disclaimed. The information and opinions expressed by others in this material are their own and are not endorsed or approved by FBN or its affiliates. Past performance is not necessarily indicative of future results.
5