Can analysts out-predict USDA, Conab on Brazil crop forecasts? -Braun

NAPERVILLE, Illinois, April 10 (Reuters) - Market analysts once again seek a sizable cut to Brazil’s ongoing soybean harvest from the U.S. Department of Agriculture on Thursday despite disappointment over the agency’s relatively modest trims in recent months.

However, USDA’s track record in April has been better than the trade’s over the last few years, potentially easing doubts for the agency’s upcoming soy forecast.

Brazilian agency Conab will also update its crop estimates on Thursday, and although there are no published trade estimates for these numbers, Conab’s April soy projection is usually closer to the final than USDA’s.

But that statement comes with the huge caveat that “final” production is not always the same among the two agencies, especially with the last couple harvests, and this has been a source of confusion among traders.

This is particularly prominent in corn as Conab and USDA sit 10% apart on total Brazilian corn output for the current 2023-24 season, and this warrants eyes both on Thursday and in the months ahead with the crop still in progress.

SOY & CORN TENDENCIES

On average, analysts see USDA pegging Brazil’s 2023-24 soy crop at 151.68 million metric tons on Thursday, down from 155 million last month. Similar-magnitude cuts were predicted but not observed in the previous couple of months, and the April trade estimate is analysts’ lowest yet of the season.

In March, USDA’s projection was 5.5% higher than Conab’s 146.86 million tons, well above the previous eight seasons’ highest March differential of 2.7%. Over that same period, the highest April margin was in 2018-19 with USDA 2.8% above Conab.

That year, USDA’s April peg of Brazilian soy output was closer to both its and Conab’s eventual final. But in the past eight years, there were only three instances where USDA’s April estimate was closer to its published final than Conab was to its own final.

The two agencies are evenly split on being closer to respective finals in April on the corn crop, and the distribution of years did not appear linked with yield success. USDA’s three soybean “wins” coincided with strong harvests, though the correlation is unclear.

Crop outcomes do have a correlation with trade biases on corn, as the April trade guess for Brazil’s corn output was higher than USDA’s final figure in three of the past eight years, all coinciding with poor harvests. That is logical since much of Brazil’s corn yield is determined beyond April.

More than half of Brazil’s soybeans are typically harvested by early April, but the trade’s April soy crop estimate has been too low versus USDA’s final for seven years now, by an average of 4.5%. That is equivalent to roughly 6 million tons or 222 million bushels.

Both USDA’s and Conab’s April soybean forecasts have also been too low versus their respective finals for seven years running. USDA’s average deviation is 4%, closer than the trade, but Conab’s is the smallest at 3.4%.

Analysts, USDA and Conab all tend to underestimate Brazil’s corn crop in April whenever the harvest turns out well, and error margins are similar at this stage. The trade sees USDA cutting Brazil’s 2023-24 corn crop to 121.75 million tons from 124 million last month.

Conab’s March corn estimate was 11.25 million tons (443 million bushels) lower at 112.75 million tons on smaller area and yield ideas.

CONSENSUS NOT REQUIRED

Agreement among the two agencies on production estimates is apparently unnecessary as USDA’s 2022-23 and 2021-22 soy harvests still stand at 4.8% and 3.9%, respectively, above Conab’s published numbers.

Both agencies within the last few years overhauled their historical Brazilian soybean fundamentals as usage data suggested demand was outpacing presumed supply levels. The agencies’ 2023-24 export assumptions also vary, so another data re-examination could be warranted.

Recent Brazilian corn crop disparities are slightly smaller, as USDA’s 2022-23 and 2021-22 figures sit above Conab's numbers by 3.9% and 2.5%, respectively.

USDA is among the industry’s highest estimates of Brazil’s 2023-24 soy crop, though a well-followed Brazilian consultancy two weeks ago put out an even bigger forecast following an extensive crop tour. Other analyst estimates released within the last 10 days range from 145.46 million to 150.8 million tons. Karen Braun is a market analyst for Reuters. Views expressed above are her own.

(Writing by Karen Braun Editing by Matthew Lewis)