Brazil harvests a record crop amid export uncertainties

With 40% of its soybean area harvested by the end of February and favorable weather conditions in most of the country, Brazil is definitely headed for a record production this season.

In early February, AgRural raised its production estimate to 125.6 million metric tons, more than 10 million tons up from last year. There are drought-related losses, however, in Rio Grande do Sul, Brazil’s southernmost state and number-three soybean producer.

AgRural has already made two cuts to the forecasted production for the state since the beginning of the year and further reductions will be made in March. Other states, on the other hand, have very good prospects and are likely to make up for most of the losses in Rio Grande.

Even with a bumper crop, Brazil is likely to export less soybeans in 2020. Before the coronavirus outbreak in China, AgRural had estimated exports at 70 million metric tons, 4 million metric tons down from 2019, due to an expected increase in the US exports to China.

That increase, a result of the “phase one” deal signed on Jan 15, is likely to happen in the last quarter of the year, when Brazilian soybeans are not as competitive as they are earlier in the year.

After the coronavirus, however, it is really hard to say if China will buy as much soybeans as initially expected. For now, the best thing to do is wait and see what happens. Brazilian exports have been strong since the beginning of the year and could be even stronger if it were not for the delayed harvest and excessive rainfall in some areas.

With the 2019/20 harvest finally approaching a normal pace, the vessel line-up for March shows potential for something close to 9 million metric tons, a record for the month. But it is still hard to know, due to the coronavirus situation, if China will be able to receive so much soybeans all at once.   

Strong prices
Among so many uncertainties, Brazilian farmers have at least one thing to celebrate (in addition to the bumper crop, of course): prices. Despite the bearish tone in Chicago, Brazilian prices have been able to rise thanks to the weakening real against the dollar. Prices at the Paranaguá port, for example, have just reached their highest level in reais since 2018, spurring farmer selling not only for delivery in 2020, but also in 2021.

Good crop and bad government in Argentina

In Argentina, the soybean harvest starts only in the second half of March, but production prospects are also very good. Despite a drier pattern that has been seen in most of the country since last week, soils still have moisture and the crop develops well. So much so, that last week the Buenos Aires Grains Exchange raised its production estimate from 53.1 million to 54.5 million metric tons, not far from last year’s 55.1 million metric tons.

Farmers have already sold about 5.6 million metric tons for export, compared to less than 600 thousand metric tons a year ago. That’s huge, since Argentina doesn’t export more than 10 million metric tons per year (the country is the world’s number one exporter of soymeal and soybean oil, but only the third when it comes to soybeans).

The problem for the Argentinean farmers is that last week the government shut the export registry as it prepares an export tax hike – the second since President Fernández took office last December. Farmer lobby groups are in talks with the government and demonstrations and strikes are likely over the next few days – something that might give a little help to Brazilian and even the US exports in the short term. 

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