The drought will knock the U.S. from its top position in the world soybean market, according to USDA estimates.
A government forecast indicates Brazil will replace the U.S. as the top producer of soybeans in the world during the 2012-13 harvest seasons.
"This is first year that we’re forecasting that Brazil alone will out-produce the U.S. in soybeans," says Gerald Bange, the USDA official responsible for keeping the World Agricultural Supply and Demand Estimates. Speaking at the Future Farm World Americas conference in San Francisco this week, Bange presented a post-drought update on the world agricultural situation.
The agency’s latest report estimates that Brazil will produce 81 million tons of soybeans during this harvest year, compared to 77.8 million tons for the U.S. The U.S. probably would have retained its lead were it not for this year’s severe drought.
Soybean production in the U.S. is expected to drop 7.5% from last year, by USDA estimates, while production in Brazil will increase 21.8% thanks in part to strides there in developing land suitable for growing soybeans.
Bange notes that final data on world soybean production won’t be available for a while "because they’ve just planted in the Southern Hemisphere. But the crop that was just planted in Brazil looks good. The same with Argentina. These countries had trouble last year."
U.S. Holds Title for Corn Production
The U.S. remains the world’s biggest corn producer at 272 million metric tons, but other countries, particularly China, are coming on strong. China will produce 200 million metric tons of corn in 2012-2013, up 4% over the previous year. Brazil is on a course to generate 70 million metric tons of corn.
Bange told the crowd that the current situation in the corn market—high prices and short supply —would be much worse if the rest of the world weren’t producing more corn. World corn production will be down 4.4% during this harvest year.
The fall-off in U.S. corn production comes as foreign consumption is rising, particularly in Asia. U.S. producers this year moved to meet that demand, planting 96.9 million acres of corn. That was one of the biggest numbers in decades, but not in history: U.S. farmers actually planted more corn in 1937, Bange says.
Back then, they could expect yields of only 30 bushels per acre. Now, yields of approximately 150 bushels per acre are normal. "If you do the math, at today’s prices, you find that 10.7 billion bushels is more valuable to farmers than the 14 billion that was expected."
This year’s drought is roughly equivalent to that of 1988, Bange said. But it has had a far bigger impact on prices. "Back then, we had 4 billion bushels in inventory, back stock, going into the situation," Bange says. "This year, we have 1 billion."
Higher corn prices led to speculation that the livestock industry would liquidate. "There is not a massive liquidation underway," says Bange, noting that it takes several years to rebuild a herd. "All these industries are trying to weather the storm.
"Dairy showed early signs of liquidation, but they’ve stopped," he says, adding that the industry is hoping that South American feed production will pick up the slack.
Bange also contends that the use of corn for ethanol has plateaued. Worldwide, he says, only 2.2% of world grain goes into ethanol. That number is higher in the U.S. "Worldwide, it’s not a big number," he says.
Global Drought Zaps Wheat
The U.S. wasn’t the only country to feel the impact of hot weather on agricultural production.
"There was a similar drought in Europe that few people talked about," says Bange, noting that Ukraine and Kyrgyzstan, big producers of wheat, got hit pretty hard. Drought conditions also brought down wheat production in the southern part of Australia.
The bottom line is that worldwide wheat production will be down significantly, 6.1% in 2012-13, compared to the previous year. Even so, Bange doesn’t think there are any major problems in the worldwide wheat market because large wheat stocks are on hand. The U.S. produces less than 10% of world wheat.
That said, wheat prices have risen sharply in the last two years. "When corn prices go up, wheat can go up right along with it," says Bange, noting that wheat’s use for feed is up almost 100%.