In recent years, global agriculture has faced a scenario of profound changes, driven by both economic and environmental transformations. The production of vegetable oils, one of the most important commodities for the global economy, has not been immune to these pressures. With growing demand and increasingly competitive markets, producers around the world have sought strategies to optimize their harvests and increase their share of international markets. However, in addition to commercial challenges, the effects of climate change have become a crucial variable, drastically altering the way agriculture is conducted, especially in highly climate-sensitive regions, such as South America. In this context, analyzing the impact of climate phenomena and their repercussions on agricultural production is more necessary than ever.
South America has consolidated its position as one of the main players in the production of vegetable oils, standing out both in large markets and soy, palm and sunflower, as well as in niches such as peanut and corn. However, this successful trajectory faces increasing challenges posed by climate change. Phenomena such as El Niño and La Niña have generated significant impacts on the region's climate conditions, altering precipitation and temperature patterns and, consequently, affecting agricultural production. With agriculture highly dependent on the climate, Latin American countries, especially Brazil and Argentina, are dealing with losses and adjustments that affect everything from large soybean plantations to emerging crops such as sunflower and peanuts. In this scenario, it is crucial to understand climate dynamics and their consequences for the sustainability and resilience of the agricultural sector in the region.
The influence of El Niño and La Niña on Latin American agriculture
El Niño and La Niña, two cyclical climate phenomena with great global influence, are characterized by anomalies in the surface temperatures of the equatorial Pacific Ocean. These thermal oscillations, which occur at irregular intervals of 2 to 7 years, trigger a complex network of atmospheric and oceanic interactions, resulting in significant changes in rainfall and temperature patterns in various regions of the planet.
El Niño, marked by the abnormal warming of the equatorial waters of the Pacific, is associated with a series of climate impacts, such as increased rainfall in some regions and the intensification of droughts in others. La Niña, in turn, characterized by the cooling of these same waters, has opposite effects, with reduced rainfall in some areas and increased rainfall in others.
In this scenario, Brazil is facing an unprecedented environmental crisis, marked by severe impacts of climate change, which are affecting biodiversity, quality of life and the country's economy. The situation is alarming, with a combination of devastating forest fires, prolonged droughts and extreme weather events, which have direct consequences for the population and ecosystems.
Because it is a continental country, Brazil suffers in different ways from the effects of climate variations. These variations have different impacts in each region.
Soybean and corn crops in the Midwest resisted the weather conditions
During the first half of the year, during the final stages of the soybean harvest, the country's main crop, the North and Northeast regions suffered from reduced rainfall and droughts of varying intensity. These regions recorded a significant increase in soybean production; however, the drought at the end of planting had a small impact on productivity. In the Central-West and Southeast regions, there was an increase in average temperatures, but the rains occurred at opportune times, not impacting production, especially in Mato Grosso, Goiás and Mato Grosso do Sul, which concentrate the largest soybean production. The impacts resulted in a loss of approximately 5%.
Corn, both in the first and second harvests, followed the good performance of soybeans in the Central-West, maintaining good production and productivity. Cotton also had a good harvest, benefiting from well-distributed rainfall and adequate temperatures throughout the crop cycle, which was essential for the good development of the plants.
Sunflower and peanut: Promising crops suffer significant losses
The most significant impacts this year occurred in two crops that, although still small, are promising for the Brazilian market. Sunflower, used as a rotation crop with soybeans in Mato Grosso and Goiás, suffered a loss of approximately 35% due to the drought in the middle of the year. Peanuts, used as a rotation crop with sugarcane in the state of São Paulo, faced heavy losses caused by the drought and extreme heat at the beginning of the year, with an estimated loss of between 40-60%, with several cities declaring a state of emergency with soil temperatures reaching 60°C.
The southern region was heavily impacted by the El Niño phenomenon, with heavy rains causing extreme flooding in the state of Rio Grande do Sul. The losses occurred mainly in the areas where soybeans, corn and rice are grown, the state's main crops. Due to the impact of the rains and mud, these areas became less fertile, mainly affecting the irrigated rice harvest. The region's infrastructure was also seriously affected: factories had their grain stocks flooded, equipment was rendered inoperative due to being submerged, and roads were damaged, hampering regional logistics.
Impact of La Niña and fires devastate the North Region and the Pantanal
In the second half of the year, with the beginning of signs of the La Niña phenomenon, the North and Northeast regions began to suffer from a severe drought, which spread to the Central-West and Southeast regions. The delay in the onset of rains and low precipitation, combined with high temperatures, affected the start of the soybean planting window. The fires, which dominated the news in recent weeks, consumed an area equivalent to 10 million soccer fields, with 70% of this devastation occurring in native forests. Regions such as the Amazon and the Pantanal were particularly affected, with losses of 5.4 million and 1.2 million hectares, respectively. This impact is already being felt in the soybean planting window, which occurs between September and November, and, with no forecast of rain in the first few months, the productivity of the next harvest may be affected.
Argentina suffered major impacts in the 2023 soybean harvest, but managed to recover much of its numbers during the El Niño effect in the first half of this year. With excellent rainfall and temperatures during this period and the increase in the planted area compared to the previous harvest, Argentine soybeans reached good levels of production and productivity. Compared to the country's average, growth was 10%.
While the weather was favorable for the soybean-producing region, it became unfavorable for olive oil production, resulting in a loss of almost 30%. Frosts, droughts and irregular rainfall directly affected the production and quality of olive trees in the San Juan and La Rioja regions, impacting the olive market, which had already suffered from the crop failure in Europe in 2023 due to the La Niña effect, and which continues to face product shortages in the current market.
The El Niño effect was controversial for sunflower, which suffered a loss of approximately 2.5% compared to the national average. In some regions, such as Buenos Aires, there was an adequate distribution of rainfall throughout the crop cycle, which had a positive impact on productivity. In other areas, such as Córdoba, the occurrence of droughts and/or excessive rainfall at inopportune times harmed productivity.
Crop diversification grows in the face of corn losses in the Pampeana region
In the case of corn, 2024 was a challenging year for the Pampeana region, the main producer of the grain, which suffered from droughts and high temperatures, compromising the development of the plants. This resulted in production and productivity losses, making the crop's profitability lower than that of soybeans.
Given the lower profitability of corn, many producers opted to diversify crops in an attempt to improve margins. The increase in the area planted with cotton was a consequence of this, since this crop adapts better to hot and humid weather. However, the lack of rain in an important planting window resulted in some darker seeds at the end of the harvest. Peanuts, on the other hand, showed more dynamic results: with the increase in the planted area, mainly in Córdoba, the country, which is a major exporter of the grain to Europe, achieved good numbers.
In the second half of the year, the lack of rain and high temperatures have hampered the start of the soybean and sunflower crop cycle, which is starting late to avoid productivity losses next year. In addition, it is important to keep an eye on the levels of the region's rivers, since part of the flow of products from Latin American countries is done by river transport. For example, the Paraná River, which forms the border between Brazil and Argentina and bathes one of Argentina's busiest ports, has been showing alarmingly low levels since the beginning of September, which hinders and limits port operations.
Paraguay and the water crisis: Impacts on navigation and grain exports
The Paraguay River, one of the region’s main grain transport routes, is facing an unprecedented water crisis. In the Paraguayan capital, Asunción, water levels have reached a record low, with depths measured at 0.82 meters below the “zero” level. This situation, the result of a severe drought in the upper reaches of the river, is significantly hampering navigation, according to data from Paraguay’s National Directorate of Meteorology and Hydrology.
The Paraguayan Chamber of Oilseed and Grain Crushing (Cappro) has issued an alert regarding the near-total halt in navigation in the northern portion of the Paraguay Waterway, due to the significant reduction in water levels. Although shipments are being affected, the impact is considered limited at the moment, given that this is not the period of greatest commercial activity. Considering that Paraguay ranks third in the world ranking of soybean exporters and that approximately 80% of its exports are transported by river, the situation requires special attention.
Jorge Sánchez, deputy director of Paraguay’s Meteorology and Hydrology Directorate, stressed that the outlook for river levels in the coming months is worrying, even with the rainy season approaching in October and November. A continued drought could make the situation even worse.
Colombia faced droughts during the first half of the year, as did the north and northeast of Brazil. The lack of rain compromised plant development, reducing productivity per hectare and affecting fruit quality, as high temperatures accelerate ripening and reduce the oil content of the product. Refineries normally operate at an extraction rate of between 20% and 21%, but at the height of this year's oil shortage, industries were operating their plants at a rate of between 14% and 16%.
On the other hand, other areas recorded excessive rainfall concentrated in short periods. Heavy rains can cause soil erosion, nutrient loss and damage to crops, in addition to favoring the development of diseases such as AF (fatal yellowing of oil palm).
Large producers suffered million-dollar losses on their plantations, with rotting fruit and bunches that did not develop. As a result, the market faced delays in receiving supplies, renegotiations of previously negotiated contracts and attempts to replace the oil with other vegetable oils. However, there are markets that do not allow this replacement, such as soap factories, which are somewhat dependent on lauric oils. The Hygiene and Cleaning market has a strong demand for palm kernel oil, which was extremely affected by the crop failure, since it is extracted from the almond of the palm fruit, and the volume produced is equivalent to 10% of palm oil production.
The market as a whole in Latin America is experiencing restricted volumes, but an improvement in Brazilian production is expected, since the harvest begins now in September. In Ecuador, Peru and Colombia, better volumes are expected from December/January.
The economic impact of extreme weather conditions in Latin America
When we talk about countries with a high level of economic dependence on agriculture, the consequences of these extreme weather conditions extend beyond the agricultural sector. The reduction in production has generated significant economic losses for the country, affecting both farmers and the economy as a whole. Food insecurity, as well as the increase in product prices on the market, directly impacts the lives of the local population.
Forecasts indicate that La Niña could intensify by the end of the year, prolonging the effects of the drought and hindering the recovery of agricultural production. Therefore, it is essential that both the government and farmers adopt measures to mitigate the impacts of climate change in order to ensure good harvests in the long term.
Text written by:
Julia Vilela | Sunflower oil and olive oil specialist at Soft Oils
Keywe Bonfim | After-sales service for the Soft Oils unit
Leonardo Novais | Corn oil specialist at Soft Oils unit
Philip DiMarco | After-sales service for the Palm & Lauric Oils unit
Maila Dias | Palm & Lauric Oils Specialist at the Palm & Lauric Oils unit
Review by: Vanessa Ferreira
