The Effects of El Niño Weather Phenomenon on the Brazilian Agriculture

Published Dec 19, 2023
El Niño peaked in Dec-23, bringing dire warnings and posing severe threats to Brazilian agriculture. Adverse weather conditions from El Niño prompted a 1.4% reduction in Brazil's 2023/24 soybean harvest forecast. Delays in planting and potential replanting raise concerns. In addition, maize exports face challenges due to drought affecting Amazon rivers, despite an overall record harvest forecast. Furthermore, Brazil's sugarcane crop outlook improved with favorable weather, triggering a decline in global sugar prices. The government's 11% increased estimate for sugarcane production reaching 677.6 mmt supports positive production trends but uncertainties persist due to global supply challenges and the impact of El Niño. Conab projects a 1.5% decline in the 2023/24 grain crop due to climate uncertainties, including El Niño. Rice cultivation sees growth, but concerns about El Niño's impact on productivity persist. Lastly, shifts from El Niño to La Niña raised concerns about coffee production in Brazil. Mixed price trends and production challenges were experienced, influenced by weather variations and global market dynamics. Brazil faces both challenges and opportunities in its coffee sector.

El Niño, officially declared by the National Oceanic and Atmospheric Administration (NOAA) in Jun-23, is exerting substantial climate impacts globally, disrupting weather patterns and particularly affecting Latin America, and over the past 20 years, El Niño has caused economic losses estimated at USD 28 billion. The warming phenomenon is forecasted to intensify into the Northern Hemisphere winter.

El Niño's Peak in Dec-23 Sparks Dire Warning for Brazil

El Niño reached its peak in Dec-23, leading climate experts to issue a warning for Brazil. The Brazilian Academy of Sciences highlighted the dangers, including deepening drought in the Amazon, increased heat in the Central-West and Southeast, and an anticipated severe drought in the Northeast in early 2024. Furthermore, simultaneous climatic extremes in 2023, such as heatwaves, drought, and heavy rains, impacted various regions, making it potentially the hottest year in the last 125 thousand years, according to the World Meteorological Organization.

Experts attribute these impacts to El Niño's intensification and abnormal warming in the North Atlantic. Concerns include the weakening of the Amazon forest, a 300% increase in tree mortality, and the urgent need for government programs and immediate actions to address social and environmental consequences. The increasing occurrences of heatwaves emphasizes the severity of the situation, underscoring the need for preventive and adaptive measures in Brazil.

El Niño Challenges Impact Brazil's 2023/24 Soybean Harvest Forecast and Market Dynamics

The impact of El Niño on Brazilian agriculture is evident, prompting Conab to lower its harvest forecasts for soybeans and corn. As of Dec-23, the National Supply Company (Conab) has revised its forecast for the 2023/24 soybean harvest due to adverse weather conditions caused by El Niño, projecting a crop of 160.17 million metric tons (mmt). While it would still be a record crop, it is a 1.4% reduction from the Nov-23 estimate. Slow soybean planting progress, particularly in Mato Grosso, is attributed to hot and dry weather, leading to potential replanting. The contrasting weather patterns, influenced by the El Niño phenomenon, include dry conditions in the North and excessive rainfall in the South.

At the start of the season, Brazilian soybean growers were optimistic about 2023/24 with increased investments in the sector. Conab projects a record soybean area of 45.30 million hectares (ha), a 1.33% increase from the previous season. Favorable weather facilitated the start of soybean sowing, notably in the State of Paraná.

The United States Department of Agriculture (USDA) anticipates heightened demand in the 2023/24 season, projecting a record soybean export of 97 million tons, a 2.11% increase from the 2022/23 season. Soybean processing is also expected to reach a record 55.75 million tons, a 5.19% rise.

Despite this optimistic outlook, an anticipated surplus in supply over demand is likely to exert downward pressure on soybean prices in the Brazilian market. Between August 31 and September 15, key soybean indices, the ESALQ/BM&FBovespa soybean index experienced a decline of 3.2% to drop to 2.6%, respectively, reaching their lowest levels since early Aug-23.

Brazil Faces Challenges in Maize Exports and Domestic Harvest Amid Weather and Economic Factors

The National Association of Cereal Exporters (ANEC) reported that for Dec-23, Brazil's maize exports are forecasted to be 6.86 mmt, slightly lower than the 7.29 mmt recorded in Dec-22. The reduction in maize export volumes is attributed to decreased water levels in rivers in the Amazon due to drought. Exports are being redirected from the Northern ports to the Port of Santos. Despite this decrease, ANEC forecasts a record maize export of approximately 56 mmt for 2023, significantly surpassing the 44.7 mmt in 2022. The surge is driven by robust demand from China and a record harvest in Brazil.

Meanwhile, the Mato-Grossense Institute of Agricultural Economics (IMEA) has revised its estimate for the 2023/24 winter maize harvest in Mato Grosso to 43.75 mmt, marking a 2.5% decrease from the Nov-23 estimate and a substantial 16.67% decline from the 2022/23 cycle. The reduction in planted areas is attributed to the lack of motivation among producers, influenced by the delayed sowing of 2023/24 soybeans, limiting the ideal window for off-season maize. In addition, devalued maize prices are a concern for Brazilian producers, as they fail to cover effective operating costs, raising worries about financial losses.

Planting progress for the 2023/24 summer harvest is at 55% as of November 28, trailing behind the 68.6% recorded during the same period in 2022. As of December 9, notable states with advanced activities include Paraná with 100% (compared to 10% in 2022), Santa Catarina with 100% (compared to 99.3%), Rio Grande do Sul with 84% (compared to 88% in 2022), São Paulo with 70% (100% in 2022), followed by Minas Gerais 81% (compared to 98%), Bahia with 75% (47%), Goiás with 61% (71%), Maranhão with 5% (88%), and Piauí with 8% (20%).

However, delays in planting stand evident, with lower percentages compared to the same time in 2022, indicating a slower pace of sowing in several states. The planted crops are in various stages, with 11.3% in the emerging phase, 67.7% in vegetative development, 16.3% in flowering, and 4.7% in grain filling, compared to 2022, where maize crops were divided with 36.1% in the emergency phase and 56.8% in vegetative development.

Brazil's Improved Sugarcane Prospects Impact Global Sugar Prices Amid Market Dynamics

Global sugar prices have experienced a significant decline from multi-year highs, influenced by improved prospects for Brazil's sugarcane crop, the world's largest. Favorable precipitation in key sugarcane-growing states, such as São Paulo, Minas Gerais, and Goiás, has contributed to a positive outlook. Brazil's rainy season, crucial for sugarcane growth, is expected to receive above-average precipitation in Jan-24 due to El Niño, supporting crop development. The Brazilian government increased the estimate for sugarcane production in the current crop year, reaching 677.6 mmt, an 11% rise from the previous year. This positive trend is essential as global sugar stocks are at a decade-low, and production risks exist in other major producers like India and Thailand due to El Niño. Despite a recent decline from 12-year highs, sugar futures prices remain elevated, up nearly 17% year-on-year (YoY) at USD 0.71 per kilogram (kg) on November 27, 2023.

During Oct-23, sugar prices rebounded from five-week lows, driven by concerns of frequent rains in Brazil's major sugarcane growing areas, slowing sugar production. The weakened Brazilian real (BRL) reached a six-month low, encouraged export selling, and exerted downward pressure on sugar prices. In addition, the decline in crude oil prices contributed to the fluctuation in sugar prices, affecting ethanol production and diverting more sugar cane toward sugar production. Reports indicated an increase in sugar output in Brazil and a reduction in demand from China, contributing to market dynamics. The potential impact of the El Niño weather pattern on global sugar production adds a level of uncertainty to market conditions. Despite fluctuations, sugar prices rose sharply in Oct-23, driven by concerns about smaller global sugar production. Amid global supply challenges, Brazil's improved sugar production outlook remains a key factor influencing market dynamics.

Brazil's Rice Production Faces Uncertainties as Conab Projects 317.5 mmt Grain Harvest for 2023/24

Brazil's National Supply Company (Conab) reported that rice cultivation areas have seen 13 consecutive years of decline but are expected to increase by 5.1% at 1.56 million ha, influenced by growth in Rio Grande do Sul. However, the impact of El Niño on rice productivity remains a concern.

In Nov-23, the 2022/23 rice harvest concluded successfully despite challenging weather caused by El Niño, particularly in Rio Grande do Sul, the primary producing state. Despite a lower planted area due to high production costs and crop substitution, high yields resulted in increased production. For the 2023/24 harvest, areas were ready for sowing in Oct-23, but excess soil moisture slowed the start compared to 2022. With an anticipated reduction in production costs and higher profitability, the season is forecasted to witness increased production following two seasons of decline. The El Niño phenomenon is anticipated to bring excess rain to Rio Grande do Sul, benefiting rice cultivation.

According to the latest forecast from Conab, rice production dropped to 10.78 million tons. Production costs for the 2023/24 harvest have shown signs of relief compared to the previous year, contributing to increased profitability for rice producers.

El Niño and La Niña Shifts Impact Brazilian Coffee Dynamics with Mixed Price Trends and Production Challenges

During Sep-23, the shift from El Niño to La Niña drew attention to its impact on global warming and, specifically, its effects on coffee-producing regions. Different coffee-producing countries experience diverse effects due to these variations. Brazil anticipates a wetter climate due to El Niño, which may benefit coffee flowering but raises concerns about disease and quality.

In the 2022/23 season, South America experienced a 4.8% increase in coffee production, reaching 81.3 million bags compared to the previous 77.6 million bags in 2021/22. The primary driver of this upturn was Brazil, which, in its biennial production cycle, achieved a record-breaking output of 65.49 million bags, an 8.4% increase.

Coffee prices in Brazil experienced a mixed trend during Nov-23, with Robusta reaching a one month high at USD 193.15/lb (BRL 940.18/lb) and Arabica retracting from a four month peak at USD 191.37/60 kg bag (BRL 945/60 kg bag). The surge in Robusta prices is attributed to a forecast from Vietnam's agriculture department, indicating a potential 10% decline in coffee production for the 2023/24 crop year due to drought. ICE-monitored inventories for both Arabica and Robusta are dwindling, with Arabica reaching a 24-year low at USD 1.59 per pound (lb). Concerns arise in Brazil's Minas Gerais region, responsible for approximately 30% of the country's Arabica crop, due to below-normal rainfall due to El Niño, potentially affecting coffee yields. Elevated temperatures in Brazil, reaching 40° Celsius, raise worries about potential damage to coffee trees and reduced yields.

Brazil reported a 24% YoY increase in green coffee exports in Oct-23, a bearish factor for prices. Additionally, Rabobank's projection of an 18% YoY increase in Brazil's coffee exports from Jun-23 to Jun-24 introduces further negative sentiment. The declared El Niño weather event in Brazil adds an element of uncertainty to coffee crop production. While global coffee exports are shrinking, reflecting increased consumption, Brazil faces challenges and opportunities in its coffee market dynamics. The USDA Foreign Agricultural Service forecasts a modest rise in ending stocks for the 2023/24 season, contributing to the overall complexity of the Brazilian coffee landscape.

Brazil's Weather Outlook for Late 2023-Early 2024 and Agricultural Impact

A significant portion of Brazil, excluding Central-Southern states, is expected to face below-average rainfall in Q4-2023, impacting major maize production areas like Mato Grosso. This could lead to further reductions in production estimates. Furthermore, Southern states anticipate above-average rainfall, while the second part of the season foresees average conditions in productive areas. The dry outlook extends to Bolivia and other northern South American regions, signaling potential challenges for agriculture until Mar-24.

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