Record Brazilian soybean supply set to pressure competition in 2022

The Brazilian soybean sector is forecast to produce record-breaking volume in crop year 2021-22 (September-August), likely pressuring major rivals the US and Argentina.

The National Supply Company, or Conab, and the US Department of Agriculture expect Brazil’s soybean production at 142.8 million mt and 144 million mt, respectively, in 2021-22, compared with a record 138 million mt in 2020-21. Platts Analytics also expects an all-time high-volume range of 142-144 million mt, as long as rains are ample until late-January.

Brazilian soybean farmers have lapped up huge profits over the past two years, due to high oilseed prices, weak real and robust demand from China, Conab said. Farmers are bullish about 2021-22 soybean planting, with high acreage transferred from other crops, it said.

“Even with record 2021-22 harvest forecast, soybean prices show an upward trend, as several countries resort to stock hoardings amid heating demand for animal feed,” Conab told S&P Global Platts. “As a result, the soybean acreage in Brazil is forecast to expand 3.7% year on year to an all-time high 40.35 million hectares in 2021-22.”

The US and Argentina are likely to feel the heat in 2022 if Brazil’s output meets current-year expectations, as the three countries compete for exports to China — the world’s biggest beans importer.

Brazil’s soybean production has soared 91% between 2011 and 2021, according to the USDA, while the US output increased 32% over the last ten years to 120 million mt. Argentinian beans output declined by 1% to 49.5 million mt during the same period, as local farmers switched to corn and wheat to avoid high taxes on the oilseed.

Brazil has emerged as the top soybean supplier to China, accounting for a roughly 55% share, while the US has slipped to the second spot with a 30% share.

There is high likelihood of an earlier-than-normal harvest of Brazilian soybean crop with timely 2021-22 planting that is not favorable for the US beans exports early-2022, according to market sources.

“Brazil’s new soybean crop is likely to flood the international markets as early as mid-January, which could slacken the US oilseed exports significantly,” Terry Reilly, senior commodity analyst with agricultural commodities trading group Futures International, said.

Weak currency supports export

Brazil is forecast to export an unprecedented 93 million mt of the oilseed in 2021-22 on the back of robust Chinese soybean demand, Platts Analytics said. The USDA and Conab project Brazilian shipments at 94 million mt and 90.7 million mt, respectively, during the same period.

A weak real has provided Brazilian soybeans a distinct price advantage against the US beans.

China-based crushers prefer to purchase the cheaper Brazilian beans, as the protein-content of the Brazilian and the US origins is equivalent, a China-based crusher said.

Brazilian soybeans are priced in US dollars but paid in real, benefiting Brazilian farmers because of the low value of the real against the dollar, the USDA said.

The Brazilian real had depreciated 46% against the dollar since the second quarter 2019 to real 5.71 as of Dec. 23, providing a massive advantage to Brazilian soybean farmers in export markets, with Brazilian soybeans selling at an average discount of 20-30 cents/bu against the US origin.

Commodities analysts expect the Brazilian real to remain weak in 2022 on fiscal concerns and political factors.

“We believe the real will remain weak and soybeans will retain their price-competitiveness in 2022, especially with the Presidential elections looming in October next year,” Daniele Siqueira, market analyst at agricultural consultancy AgRural, said. “Presidential elections make local markets very jittery, which could weaken of the currency even further.”

Domestic crush set to rise

Brazil’s crushing volume in 2022 is likely to rise despite the government’s late-November decision to cut biofuel content in diesel to 10% (B10), from a prior resolution of a 13% blend for January-February and a 14% mandate from March 2022 onward, analysts said.

Some biofuel industry experts said that the scaling down of vegetable oil-based biodiesel blend to B10 in 2022, from B13-14, could reduce Brazilian soybean crush by more than 3 million mt year on year. S&P Global Platts Analytics, however, forecast Brazilian crush about 1 million mt higher year on year at 47.7 million mt in 2021-22.

The Brazilian Association of Vegetable Oil Industries, or ABIOVE, has said Brazil’s domestic crushing in 2021-22 is forecast to reach an all-time high of 48 million mt, up 1.5 million mt year on year.

S&P Global Platts

Tags: China, Brazil, soybean, USA, Argentina