Global Crop Assessment Methods and Risk Reduction the Case of Brazilian Soybeans

Global soybean production is valued at about S45 billion annually. About one-third of global soybean consumption is derived from imported soybeans. Brazil, the world's second largest soybean producer, accounts for 37 percent of global soybean exports, up from just 8 percent in 1990. Accurate and timely estimation of Brazil's soybean crop each year is critical for decision-making and planning throughout oilseeds, grains, and livestock markets around the world.

To highlight this point, Figure 9.9 shows the Chicago Board of Trade November futures price of soybeans tracked from April 2004 through September 2005. Prices are measured in U.S. dollars per bushel, tte figure illustrates the potential for significant market impact due to weather events, and the critical need for timely information for buyers, sellers, and all other business ventures involved in oilseed markets around the world.

April 2004 through September 2004 is the period during which the Brazilian soybean producer makes planting decisions, with actual planting occurring mainly in October and November, ttis was generally a period of falling prices, indicated by a 15-percent decline in the November futures price. Despite declining prices, area expanded that year and there was market expectation of a record large Brazilian soybean crop. However, drought struck parts of Brazil during the main 2004/05 growing season. From February through mid-March 2005, CBOT prices rose almost 25 percent. Business enterprises throughout the oilseed sector stood to gain or lose significant income depending on the timing of decisions to buy or sell during this short period of rapidly escalating prices. Accurate global supply and demand estimates were needed by the market during this period, especially so with

Fig. 9.9 Chicago Board of Trade November futures price of soybeans, April 2004 -September 2005.

hindsight knowledge of the fact that parts of the U.S. crop suffered dry conditions early in the season, pushing prices even higher.

Assessing the size of the Brazilian soybean crop is made especially difficult by the fact that there are many estimates at a point in time, including estimates from two different Brazilian government sources. During the critical month of March 2005, when prices were rapidly escalating, estimates ranged from 56 to 61 million tons, with Brazilian Government estimates of the crop ranging from 57 to 61 million tons. Timely clarification of the specific size of the crop was critical in the weeks approaching the U.S. planting season. Meteorological data and analysis provided critical insight into the unfolding situation in Brazil and enabled timely dissemination of information to the global marketplace.

In March 2006, yet another year in which drought was affecting the Brazilian soybean crop, the Brazilian Government released a yield estimate of 2.4 t ha1 for the state of Mato Grosso do Sul, down from its previous estimate of 2.71 ha-1. USDA was at the time estimating the yield at 2.65 tons per hectare. Our issue was whether we should lower our production estimate for Brazil in light of the new Brazilian yield estimate.

A significant problem in evaluating this new estimate was the lack of meteorological data for the state. WMO stations and general soybean producing areas for Mato Grosso do Sul are depicted in Figure 9.10.

■ World Agricultural Outlook Board USDA

Wa Uii.i A^inUniWufer ruiiity - Average from 2002 to 2004 [Source: IBGE Brazil)

Fig. 9.10 WMO stations and soybean producing areas for Mato Grosso do Sul.

■ World Agricultural Outlook Board USDA

Wa Uii.i A^inUniWufer ruiiity - Average from 2002 to 2004 [Source: IBGE Brazil)

Fig. 9.10 WMO stations and soybean producing areas for Mato Grosso do Sul.

An accurate analysis would require a combination of all of the available tools.

Temperature and cumulative precipitation charts with comparisons to normal values and to 2002 (selected as an analog year) revealed nothing to suggest a significant yield reduction was appropriate at that stage of the crop cycle, tte soil moisture profile depicted in Figure 9.11 shows a drying period from mid-January through early February, but recharge returned values to historic norms by early March. Again, no clear indication was presented to reduce yield. However, with the limited availability of WMO station data, more analysis was necessary to confirm the estimate. Weekly CMORPH data were analyzed, typified by Figure 9.11 for February 19-25:

With CMORPH data and analysis supporting conclusions from other weather indications, a case was developing to hold off on reducing the Brazilian crop due to yield deterioration in Mato Grosso do Sul.

Further analysis of the situation was conducted through application of satellite imagery crop masking techniques to more clearly identify soybean producing areas and comparative NDVI analysis of the region, ttese techniques are depicted in Figure 9.12.

With major soybean areas outlined in the south-central and northern regions, it is apparent that 2006 was faring better than 2002 in some cases, and in the areas with lower NDVI scores, soybean production was not highly concentrated.

CMORPH Est mated

Feb 19-25, 2006

■ tia - U IVjriJ ^ricultwil Outlook Uau-J USDA

WCI U Joim Ast-irulturii Wtalher > m iIiIt

Fig. 9.11 CMORPH estimated PCP, February 19-25, 2006.

CMORPH Est mated

Feb 19-25, 2006

■ tia - U IVjriJ ^ricultwil Outlook Uau-J USDA

WCI U Joim Ast-irulturii Wtalher > m iIiIt

Fig. 9.11 CMORPH estimated PCP, February 19-25, 2006.

From the combination of analysis of data for Mato Grosso do Sul for early 2006, it was concluded to leave the yield unchanged at 2.65 t ha1 for that month. However, the analysis continued throughout the crop cycle, leaving open the possibility that the crop estimate could be adjusted in later months.

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