Brazil headed for a bumper soy crop amid US-China deal

The 2019/20 soybean crop harvest has started with expectations for a record production in Brazil. Despite planting delays in some states due to irregular rains in the fourth quarter of 2019, production is pegged by consultancy AgRural at 123.9 million metric tons, 1.2 million up from the previous estimate and a new record for the country, above the 119 million metric tons produced two years ago.

By Jan 16, 1.8% of the soybean area had been harvest in Brazil, most of it in top producer Mato Grosso, where yield reports have been coming at the high end of expectations. In the rest of the country, soybeans still need beneficial weather conditions until at least the end of February to secure a bumper crop, since important states such as Paraná, Mato Grosso do Sul and Goiás had significant planting delays. All of them, however, have favorable weather forecasts.

Still at risk
In Rio Grande do Sul, Brazil’s southernmost state, and in the North/Northeast region known as “Matopiba” (Maranhão, Tocantins, Piauí and Bahia), hot, dry conditions seen in December reduced the yield potential. But, since those states plant later than the rest of the country, the lack of moisture was felt when most of their areas were still in the vegetative stage. That is why they can still have a good crop, depending on how the weather will behave until March. Conditions have improved now in January, but they still have a long way to go, no doubt.

Nevertheless, the biggest concern right now is the trade deal signed last week by the US and China. Favored by the trade war, Brazil exported 83.3 million metric tons of soybeans in 2018 (out of which 68.6 million were shipped to China) and 74 million metric tons in 2019 (58 million to China). In 2017, when Chinese soybean imports from the US were still at normal levels, Brazil exported 53.8 million metric tons to China and 68.2 million considering all destinations.

Since nobody knows how much soybeans the Chinese will effectively buy from the US in order to increase their agricultural purchases by at least $12.5 billion over the $24 billion bought in 2017, it is still very hard to project Brazil’s soybean exports in 2020.

Market conditions
But two things seem to favor Brazilian exports – if not to remain at the same level seen in 2019, at least not to fall much. The first one is the fact that almost half of the projected production is already sold by farmers, much of that to Chinese importers, who have kept buying new cargoes even after the deal with the US was announced in December and signed on Jan 15. The second thing is that China is likely to buy based on “market conditions”. And Brazil, with a record new crop already being harvested, will probably be more competitive than the US and its 2019/20 crop of only 96 million metric tons.
That said, Brazilian exports are likely to have a nearly normal first semester now in 2020. Even with a delayed crop, shipments are already stronger than expected now in January and are likely to ramp up in February towards a peak in April or May.

Second semester
The problem is the second half of the year. In 2018 and 2019, the Chinese demand spurred shipments in the second semester to 44% and 41% of the annual total, from only 34% on the previous five-year average. If the US harvests a good 2020/21 soybean crop, the “market conditions” signaled by China as a guide for its purchases will favor the US exports in late 2020. That would be a “back-to-normal” end of the year for Brazil. But certainly a bitter one after the performance seen in the last months of 2018 and 2019.

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