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Factbox: La Nina wreaks havoc in South America, to keep corn, bean supply tight

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Factbox: La Nina wreaks havoc in South America, to keep corn, bean supply tight

Highlights

Weak La Nina expected to continue with probability of 77% in March-May

Argentina corn crops need more rains in February to avoid yield losses

High grain prices likely to continue in the first half of 2022

The La Nina event has led to considerable yield losses in grain and oilseed crops in Brazil and Argentina, both major suppliers to the world, in marketing year 2020-21 and 2021-22.

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The drop in soybean and corn yields in South America is likely to reduce the supply of grain and oilseeds, keep prices firm in the local market and support the global prices in the first half of 2022.

La Nina refers to the large-scale cooling of the ocean surface temperatures in the central and eastern equatorial Pacific Ocean, coupled with changes in the tropical atmospheric circulation, namely winds, pressure, and rainfall.

Generally, Southeast Asia, South Africa, India, and Australia receive above-normal rainfall in a La Nina event, and drier weather is seen in Argentina, Europe, Brazil, and the southern US.

Meanwhile, weak La Nina is expected to continue until Northern Hemisphere spring, with a moderate probability of 77% during March-May, the International Research Institute for Climate and Society said in its latest update.

Prices

**Corn and soybean prices have been firm in Brazil and Argentina since MY 2020-21.

**The most traded corn contract on Brazil's B3 exchange closed at real 96.83/60-kg bag ($312.196/mt) on Feb. 17, compared to real 86.84/60-kg bag a year ago, which was already higher than the usual levels.

**July corn futures on Argentina's Matba Rofex exchange closed at $220.9/mt on Feb. 17, against $188/mt around the same period last year.

**Corn FOB price from Santos in Brazil was assessed by S&P Global Platts at $269.96/mt Feb. 17 for loading in August, while it was $233.65/mt a year ago.

**Soybean FOB price from Santos in Brazil was assessed by Platts at $632.39/mt as of Feb. 17 for loading in April, while it was $516.46/mt a year ago.

Trade flows

**Following the drought, Brazil's corn exports plunged to 20.9 million mt in 2020-21 from 35 million mt in 2019-20, while soybean export is seen dropping to 80.16 million mt in 2021-22 from 86.11 million mt in 2020-21, according to Brazil's national agricultural agency Conab.

**Brazil corn imports rose to a record 3 million mt in 2020-21 from 1.45 million mt in 2019-20, Conab said.

**Paraguay's soybean export in 2021-22 is pegged at 4.15 million mt, down from 6.33 million mt in 2020-21, according to the US Department of Agriculture's Foreign Agricultural Service forecast.

**Argentina's wheat exports dropped to 11.53 million mt in 2020-21 from 12.79 million mt in 2019-20, according to the USDA.

Infrastructure

**While La Nina took a toll on the wheat crop in Argentina and corn in Brazil in MY 2020-21, Brazil's soybean and the first corn crop are seen taking a severe hit in production in MY 2021-22 due to another drought.

**There is a further risk to corn production in Argentina in 2021-22 if there is not sufficient rain in February.

**Brazil's second-corn crop sowing has just begun and there is a long way to go before the record output projections materialize.

**Following the corn crop losses during the second-corn harvest in 2020-21, the Brazilian government had taken a few steps to increase corn imports.

**In April 2021, the Executive Management Committee of the Foreign Trade Chamber of Brazil zeroed out import tariffs for soybeans and corn for the countries outside of Mercosur through the end of the year. The suspension was subsequently extended through Dec. 31, 2022, however, this year the suspension is only applicable to Mercosur members.

**In mid June 2021, the National Technical Commission on Biosecurity eliminated the issue of the asynchronous approval, guaranteeing that any imported corn from the US to Brazil would be cleared at the port.

**In late September, the government approved a temporary suspension of the PIS/Cofins taxes on corn imports through December 31, 2021. This suspension applies to all corn imports, including shipments from Mercosur countries that normally pay this tax.

**In late 2021, the Argentinian government announced a new policy for corn exports, with the goal of keeping domestic food prices under control. The new framework regulates exports based on a volume of equilibrium of exports, known as VEE, and limits export permits.