|Cargill’s Sousa believes that they won’t have a problem with demand since Brazil’s soybeans remain very competitive. / Photo by Kelvin Helen Haboski via Shutterstock|
Brazil’s soybean reached an all-time high in April, threatening US farmers’ hopes of having a booming export due to the US-China trade deal, according to Bloomberg.
Brazil enjoys a bumper soybean harvest
The country’s bumper harvest coupled with a drop in currency to an all-time low close to 5.40 dollars improved its competitiveness amid strong global demand for soybeans, particularly from China. Soybean shipments from Brazil reached 34.5 million tons in April, based on the Economy Ministry of Brazil. Soybean exports to China also increased by 28.5%.
The Brazilian real may continue to underperform and is known to be the worst-performing major currency but it has boosted the farmers’ revenue and encouraged the producers to sell their crops. Brazilian traders and producers found importers in other countries willing to depend on Brazil for soybean supplies despite concerns over global supply chain disruptions due to the Covid-19 pandemic.
This resulted in export commitment for the first six months of 2021 and record shipments in recent months. American agricultural powerhouse Cargill’s head of operation in Brazil Paulo Sousa said in an interview that their margins in the biggest soybean-exporting nation have improved. “Volumes sold by farmers were so high that we needed to look for demand worldwide,” he said.
Because of the current scenario in the market caused by the pandemic, such as China being at risk of having its supply chain disrupted and South America facing concerns of interruptions, Cargill Inc. found high demand to ensure predictability in their supplies and restore stockpiles. Sousa added that in terms of profitability, 2020 has been a better year compared to 2019.
As protectionists policies were introduced in some countries, more and more importers looked for reliable suppliers, and Brazil can continue to take advantage of such an opportunity to present itself as a soybean supplier “with doors open,” Sousa went on. Protectionism refers to government policies that restrict international trade to help the domestic industries.
China buying more US soybeans, not a threat to Brazil
Cargill’s Sousa believes that they won’t have a problem with demand since Brazil’s soybeans remain very competitive. Although in the second half of the year there was a massive shift in the market as China buys more US soybeans, it was not considered as a threat to Brazil.
London-based intergovernmental organization International Grains Council’s senior economist Darren Cooper said that the world’s largest soy supplier has continuously become a solid competitor. Logical improvements, such as in the transport networks, and big crops enabled Brazilian exporters to change sizable amounts in the period that is supposedly linked with the bulk of marketing season in the US.
World’s largest soybean producer
While US farmers are still in the middle of their planting season, Brazil is already at their final harvest and this allowed the latter to earn the title of the world’s largest soybean producer. However, the South American nation also recognized that the continuity of its strong pace of soybean exports will still depend on China’s wiliness to increase purchases of US soybeans.
Cooper continued that considering the weakness of the exchange rate versus US dollars, Brazilian supplies remain competitive. Many Chinese processors are well-covered until the end of August.
Profitable times in Brazil’s fields
The profitable times in Brazil’s soybean fields could result in higher planted soybean area for the 2020 to 2021 season although Cargill’s Paulo Sousa believes that some environmental and credit restrictions may hinder higher growth.
Brazil once had the highest deforestation rate in the world and had the largest area of forest removed yearly. Deforestation is still a big challenge in Brazil and it needs commitment from the federal government to address this issue and reach a permanent solution that will benefit Brazil’s agriculture.
The soybean market expects Brazil to continue having strong soy export numbers from May to July this year although it remains unclear if these months can beat the April export record, says consultancy Safras & Mercado’s analyst Luiz Fernando Roque via Reuters.
May soybean export
The first soybean export recorded in May shows that Brazil needs to export at least 9 million tons this month. Roque said that the phase 1 trade deal between China and the US created uncertainty for Brazilian soybean exports in the first six months of 2020 because China needs to import a minimum amount of soy from the US as part of their deal’s terms. The big doubt now is whether China will honor this deal or not.
Our World in Data, a scientific online publication that focuses on large global problems, shared that from the average soybean yields of 2.93 tons per hectare in 2012, Brazil’s soybean yields grew to 3.03 tons per hectare in 2015, 3.38t in 2017, and 3.39t in 2018.
Countries of destinations of Brazil’s soybean
In 2019, Brazilian soybeans amounted to US$26 billion. China was the top country of destination of Brazil’s soybean exports, accounting for 78% of the total value. The second country of destination of soybean exports from Brazil was Spain with 2.9% export value share followed by the Netherlands (2.3%), Thailand (2.3%), Iran (2.1%), Turkey (1.7%), Russia (1.4%), Pakistan (1%), Vietnam (0.91%), and Mexico (0.89%), according to database company Statista.
In a study titled "Explanations for the Rise of Soybean in Brazil," the author explained that several factors paved the way for the establishment and development of the soybean culture in southern Brazil. These include the introduction of correction and liming of soil fertility, increased use of vegetable oil instead of animal fats, tax incentives, crop mechanization, creation of a well-coordinated network of research, improvements in communications, ports, and roads, tax incentives, and the emergence of efficient and dynamic cooperatives.
There is also another important factor that contributed to the increase of soybean production in Brazil and that is the prevailing temperature and photoperiod characteristics influenced by yield. The length of the day is recognized as a photoperiod, which affects the plants’ first flowering and lengths of their subsequent developmental stages.
It seems that the economic downturn has become a good thing for soy farmers in Brazil. When Brazilian real is weak, soy farmers receive more value in local terms for their harvest. Thus, they earn higher profits and this benefits Brazil’s agriculture sector.