Brazil to export more soy, premiums unclear

Brazil’s three-consecutive years of record soybean exports will likely continue in 2022, but variables like exchange rates and Chinese demand make it difficult to predict port differentials.

Brazil is expected to export 90.67mn tonnes (t) of soybeans in 2022, up by 5.7pc from estimated 2021 exports, according to the national supply company (Conab). Production for the 2021-22 soybean crop is expected to reach 142.8mn t, up by 4pc from a year earlier.

Under this scenario, the Paranagua soybean paper market, which trades as a differential to the Chicago Board of Trade (CBOT), is set to have better liquidity next year. The Paranagua paper market is a port differential market that represents a kind of correction between international soybean prices and those that should apply to the Brazilian product. That is why the performance of this market also depends on international price trends and on what happens with the exchange rate in Brazil, in addition to logistics costs.

One of the trends expected for 2022 is soybean futures prices falling because of a record harvest expected for South America and slower demand registered by China. If this happens, the port differentials would likely rise in Brazil.

But if international prices do not fall as much, Brazil may again see discounts instead of premiums in the paper market, similar to what happened in mid-2021. A stronger dollar also contributed to that mid-year volatility, as the dollar appreciated nearly 10pc through mid-December against the real. Brazil will have a presidential election in 2022, which usually increases volatility in the currency exchange rate.

In January-November, Brazil exported 83.4mn t of soybeans, a new record. Conab forecasts soybean shipments in 2021 will reach 85.79mn t, above the 82.3mn t exported in 2020.

Pandemic-struck 2021 paper market

Market participants say that from January to the first week of November, the paper market traded the equivalent of 6.8mn t, down from the 8.7mn t during in the same period of 2020. These deals are not necessarily linked to the physical sale of soybeans, but instead are often exchanges of financial positions with trading firms seeking better margins.

The drop in traded volume in the Paranagua paper market in 2021 reflects the effects of the Covid-19 pandemic that helped drive up soybean prices sharply at the beginning of the year, leading the port differentials to fall to very low levels. For much of the first half of the year the port differential was a discount to CBOT prices — such as a May deal for June closing at a discount of 55¢/bu to the CBOT. The last time that something similar happened was in 2006.

ArgusMedia

Tags: export, Brazil, soybean