For today’s post we are thrilled to welcome Todd Hubbs, Scott Irwin, and Darrel Good from the University of Illinois. Todd, Scott, and Darrel are regular contributors to the university’s Farmdoc daily and are currently writing a series of articles examining corn and soybean yields in Argentina and Brazil.
Quarterra: Thank you for taking the time to speak with us today, gentlemen. Let’s begin by having you introduce yourselves and tell us a bit about your areas of specialty.
Farmdoc: Thank you for inviting us to visit about our recent analysis of historical yields of corn and soybeans in Brazil and Argentina. We are all faculty members in the Department of Agricultural and Consumer Economics at the University of Illinois. Our area of common interest centers on the wide array of factors that impact the price of corn and soybeans. We conduct research and analysis of a variety of related topics including crop yield and production trends, world trade, biofuels markets, market performance, and price analysis and forecasting.
Quarterra: Can you tell us a bit about what has inspired your recent research into corn and soybean yields in South America? What are the key questions you are trying to answer?
Farmdoc: Our current analysis of corn and soybean yield trends in Brazil and Argentina parallels some similar analyses that we have conducted for U.S. crops. Our analysis is motivated by the importance of corn and soybean production in those two countries for world markets. Like the U.S., both Brazil and Argentina are major producers and exporters of these crops so that annual production and variation thereof have a substantial influence on trade flows and on the price of corn and soybeans around the world.
Yields are obviously a major component of annual production and market participants spend a substantial amount of time and resources every year in developing expectations about yield potential in those two countries. Our analysis focuses on trend yields and historical variation in annual yields around the trend. Historical yield variations provide very important context for understanding yield and production risk in the current production cycle.
Quarterra: For Brazil, I noticed your analysis differentiated between regions. Why did you decide to do this? How did you account for the safrinha crop in your analysis?
Farmdoc: The national yield data for Brazil revealed two important patterns. First, corn yields have increased exponentially over time rather than in a linear fashion as is the case for the U.S. Second, yields increased at a faster rate beginning in the late 1980s. We thought that these two patterns, particularly the faster rate of yield increase beginning in the late 1980s might be associated with expansion of corn production into the second season or safrinha areas. When we examined trend yields for first and second corn crops separately, we found that yields since 1989 have increased more rapidly for the second crop than for the first crop. As a result, it is important to consider the two crops independently when forming national production expectations.
For soybeans, the rapid expansion of production into the Central West region motivated us to examine whether or not yield patterns have differed in that region compared to the rest of the country. While annual patterns do differ, trend yield increases in that region were similar to the rest of the country. However, deviations from trend were not as large in the Central West region as in the rest of Brazil.
Quarterra: Could you summarize your key findings?
Farmdoc: For corn, yields have increased in an exponential fashion in both Argentina (since 1961) and Brazil (since 1989). Yield deviations from trend have been very symmetric in Argentina. That is, yields have been above and below trend in equal proportions. Average, as well as maximum positive and negative, deviations have been very similar in magnitude.
In contrast, positive yield deviations from trend corn yields have occurred more frequently than negative deviations in both the first and second season corn crops in Brazil and negative deviations have tended to be larger than positive deviations. Deviations were larger for the second crop than for the first crop.
For soybeans, yields have increased in a linear fashion for both countries since 1978. In Argentina, yields have been above trend more often than below trend. Both average and maximum negative yield deviations have been larger than positive deviations. In contrast, positive and negative yield deviations for Brazilian soybeans have been much more symmetric in both frequency and magnitude.
Quarterra: What surprised you most about the results? What were the most striking differences between corn and soybeans? What were the most striking differences between Brazil and Argentina?
Farmdoc: We were surprised to find that corn yields have increased in an exponential rather than linear fashion in both countries. That is, yields have increased in constant percentage terms rather than in constant bushel terms. This is in contrast to the linear trend increase in soybeans for both countries and for both corn and soybeans in the U.S. Trend explained a very high percentage of annual yield variation for corn in both countries and for soybeans in Brazil. However, trend explained less than half of the annual yield variation in soybeans in Argentina.
Quarterra: It can be difficult to find reliable sources of information in Latin America. Could you tell us a bit about where your data came from and how you ensured that it was credible?
Farmdoc: There are three separate public sources of yield estimates for these two countries. One source is the in-country estimates provided by the Argentina Ministry of Agribusiness and by the National Food and Supply Company (CONAB) of Brazil. Those estimates are available from 1970 forward for Argentina and 1977 forward for Brazil.
A second source is the Food and Agriculture Organization of the United Nations (FAO) and these estimates tend to be identical or very close to the in-country estimates, and are available from 1961 forward for corn and 1978 forward for soybeans.
The third source is the U.S. Department of Agriculture Foreign Agricultural Service (FAS). These estimates frequently differ from estimates from the other two sources with considerable variation in the magnitude of the variation and are available from 1961 forward for corn and 1978 forward for soybeans.
The estimates all rely on a variety of sources of information relative to area harvested and production, but lack the statistical rigor of U.S. yield estimates. We used FAS yield estimates for all analysis except the regional yield analysis in Brazil which relied on CONAB estimates since FAS does not provide regional yield estimates.
Quarterra: Just several weeks into the new year, weather has already taken center stage with flooding in Argentina and moisture threatening the early soybean harvest in Brazil. Is there any way that we can apply weather impacts to your models to inform yield expectations?
Farmdoc: The short answer is no. We have not estimated any crop weather models for corn or soybeans in either country. If weather conditions point to yields falling below trend, our analysis could provide some indication of the potential magnitude of the shortfall based on historic deviations from trend. For now, however, the USDA’s Foreign Agricultural Service has reduced the forecast of harvested acreage of soybeans in Argentina, but is still projecting an average yield 1.4 bushels above trend yield and 0.3 bushels above last year’s average yield.
Quarterra: What are your hopes for how this research might be applied? What types of users have the most to gain from incorporating your findings?
Farmdoc: Our hope is that the analysis will provide some guidance to market participants in understanding corn and soybean yield and production risk in Argentina and Brazil. We have not developed yield forecasting models, but the analysis should be helpful in quantifying potential yield outcomes in any given year.
Quarterra: Thank you again for sharing your insights and perspectives. Do you have any parting thoughts you would like to share with our readers?
Farmdoc: We appreciate your interest in our work and would be happy to try and answer any follow up questions.
Todd Hubbs (firstname.lastname@example.org), Scott Irwin (email@example.com), and Darrel Good (firstname.lastname@example.org) teach and perform research for the Department of Agricultural and Consumer Economics at the University of Illinois. They regularly contribute content to the University of Illinois’ Farmdoc Daily publication. More information on Farmdoc, including free subscription information can be found at www.farmdocdaily.illinois.edu.