Brazil's soybean exports to fall in 2018-19, as domestic demand mounts

26.04.2018

Brazil’s soybean exports will fall next season, despite a further increase in sowings, as growing domestic demand saps supplies – underlining doubts over China’s scope for handicapping imports from the US.

The US Department of Agriculture’s Brasilia bureau, in its first forecasts for 2018-19 [actually beginning in February 2019, to reflect the timing of the Brazilian harvest], forecast soybean shipments from Brazil, the top exporting country, falling by 2.0m tonnes to a three-year low of 67.0m tonnes.

Sowings will increase for a 12th successive year, to a record 35.8m hectares, said the bureau, whose estimates in fact come some six months before plantings begin in earnest.

However, with the soybean yield seen easing back after levels “way above trend” for the two latest crops, production will decline by 500,000 tonnes next season from the all-time high of 115.5m tonnes the bureau forecast for the ongoing 2017-18 harvest.

Along with continued growth in domestic consumption, the output decline will see Brazilian exports fall for only the third time in a decade.

US vs South America

The forecast comes amid a mounting focus on South American soybean export availabilities, as a gauge of the likelihood of Beijing, amid heightened China-US trade tensions, following through with a threat to place heavy tariffs on imports of the oilseed from the US.

On paper, the extent of China’s import needs – forecast by USDA officials in Beijing to hit 100m tonnes in 2018-19 – means that they would be unable to meet their requirements without turning to US supplies, even if taking in all the available exports from alternative origins.

Brazil and Argentina are the chief alternatives, although Chinese buyers have been reported as purchasing from Paraguay at the weekend.

“China looks to Paraguay, a country which they have no established protocols, apparently moving bushels through Uruguay and Argentina and off for export,” said Benson Quinn Commodities.

‘Highest levels yet’

Data earlier this week showed Chinese soybean imports from the US tumbling by 27% last month - in contrast to a 33% jump in purchases from Brazil.

Nonetheless, US volumes, at 3.10m tonnes, far outweighed the 2.33m tonnes from Brazil, whose exportable supplies are amid a seasonal recovery, as harvest progresses.

The USDA bureau pegged Brazilian soybean exports in 2017-18 at a record 69.0m tonnes, 2.35m tonnes above the USDA’s official estimate, flagging the boost from a record harvest and China’s appetite.

“The higher protein levels of Brazilian soybeans, the additional Chinese requirements on foreign matter on US soybeans, and the current trade environment, are expected to help Brazil support higher exports to the Chinese market,” the bureau said.

“Exports to China are on pace to hit their highest levels yet.”
 
‘Prices should remain strong’

The bureau said that its forecast of a further rise in Brazilian soybean sowings for 2018-19 reflects “expectation of higher prices”, which are up 29% year on year at R$85.84 per 60kg bag in the port of Paranagua, according to data from the Cepea research institute.

Dr Michael Cordonnier, at Soybean and Corn Advisor, said that “soybean prices in Brazil have strengthened in recent weeks”, due to factors including “an impending trade dispute between China and the US with the potential for a 25% tariff on US soybeans going to China.

“At these price levels, nearly every Brazilian soybean farmer will make money selling their soybeans especially if they had very good yields,” Mr Cordonnier said.

He added that “market analysts in Brazil are advising farmers that prices should remain strong for the remainder of 2018, especially if a weather concern develops during the US growing season”.

Increasing domestic demand

However, Brazilian consumption is growing too, spurred by, besides a growing livestock industry, increased demand for biodiesel, made in the country from soyoil.

Brazil last month implemented a mandate of a 10% blend of biodiesel in fuel, and there is talk of an increase to a 15% blending mandate next year.

The bureau noted “the Brazilian government’s commitments to increase the use of renewable fuels”.
 
Still, some other commentators have flagged potential for Brazil to raise its soybean exports next season, with the International Grains Council putting them at 70.2m tonnes, a rise of 1.6m tonnes year on year on its forecasts.


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