Argentina’s Dry Grain Belt May be in Good Hands With ENSO Forecast

FORT COLLINS, Colo. (Reuters) – Rainfall has been lacking over Argentina’s grain belt, and although the needed relief may not arrive in the near term, the soybean and corn crops are less likely to experience large losses if temperature patterns in the Pacific Ocean are cooperative.

Argentina is coming off a record corn harvest of 51 million tonnes in 2018-19, and its soybean output of 55.3 million tonnes was the third-largest in its history. The South American country is the No. 3 exporter of corn and soybeans but it is better known as the top supplier of soy products.

Precipitation has not been plentiful to start out the 2019-20 season. November rainfall over the primary soy and corn regions was about 30% below the recent average. That follows a much milder October deficit of about 3%, but in September and August, rainfall was close to 60% and 80% below normal, respectively.

As such, soil moisture at the end of October was the lightest for the time of year since 2011. Planting is still under way, with soybeans 55% done and corn at 56% as of last Thursday. That is slightly ahead of average on corn, but soybeans lag normal pace by about 4 points.

Rainfall is generally most critical for yield development between January and March, so there is still time for improvement. Forecast models as of Tuesday suggest the next 10 to 14 days are unlikely to provide widespread, abundant moisture.

Historically, Argentina’s yield outcomes are highly linked with fluctuations in sea surface temperatures in the equatorial Pacific Ocean, known as the El Niño-Southern Oscillation (ENSO). And this year, the forecast for slightly warmer temperatures may prove more favorable than not.

ENSO CORRELATION

When sea surface temperatures in the equatorial Pacific are warmer than normal by 0.5 degree Celsius or more, ENSO is said to be in an El Niño state. This is far more favorable for crops in Argentina than the opposite cool state, La Niña.

A moderately strong La Niña cycle two years ago coincided with one of Argentina’s worst-ever soybean and corn harvests. However, last year’s success occurred during an equally strong El Niño phase.

Mid-November ENSO models suggest a 59% chance of neutral conditions from December through February, while chances of El Niño were 40%. Past yield results suggest that the more skewed the ocean temperatures are to the warm side, the better off the Argentine crops will be.

In the last 22 years, there was only one year, 2003-04, in which ENSO neutral-positive conditions prevailed between December and February. Argentina’s soybean yield fell about 12% below the long-term trend and corn yield was even with trend.

But in the eight El Niño years within that period, the worst soy yield performance was 1% below trend. Corn yields were above trend in all eight cases.

La Niña has also been very decisive for Argentine corn. In the nine cool phases during the past 22 years, corn yield ended below trend each time. The best result was 2% below and the worst was 24% down, which happened two years ago.

Big soybean losses also coincide strictly with La Niña, as three of those harvests since 1998 produced yields more than 20% off the trend. Only one of the nine La Niña cycles featured slightly above-trend results (2000-01). The ENSO neutral-negative case has produced mixed yield results for both corn and soybeans.

Even though 2003-04 is likely the closest analog year to this year in terms of ENSO, the poor soy outcome was the result of unusually low precipitation during January through March. Such a dry pattern was an outlier compared with other similar ENSO years in the last three decades.

STEADY ESTIMATES

As of Dec. 5, data from the Argentine Ministry showed already-emerged corn mostly in good condition. Conditions are not yet available for soybeans, but they should be out later this month.

Argentina has yet to release official production estimates for 2019-20. On Tuesday, the U.S. Department of Agriculture placed corn and soybean production at 50 million and 53 million tonnes, respectively, both unchanged from the November figures. That was in line with market expectations.

It is still early for the dry conditions to move production given that planting is not yet complete. By the end of December, Argentina’s soybean planting is typically 85% complete and the corn planting is around 75% finished.

The corn harvest starts to ramp up during April, but the progress is relatively steady, reaching halfway by the end of May. Soybean harvest is quicker, starting in April and approaching 90% by the end of May.

Two years ago, USDA pegged Argentine corn production at 42 million tonnes in December, which would have been record-high, and that did not change until February when it dropped to 39 million tonnes. Soybean production fell to 56 million tonnes in January 2018 from 57 million a month earlier, though the extremely aggressive cut did not come until March.

Corn and soybean production in 2017-18 ended at 32 million and 37.8 million tonnes, respectively.