Yes, Brazil’s soybean crop has failed: What now?

By Daniele Siqueira, AgRural Commodities Agrícolas 

Imagine having your soybean crop trying to bloom and fill pods under 100 to 110 degrees every day for two weeks, after receiving below-normal rains for nearly three months and already having lost most of your corn crop, which is planted earlier than soybeans. That has been the reality in Rio Grande do Sul, Brazil’s southernmost state and number-three soybean producer. 

In the first days of January, AgRural cut its production estimate for the 2021-22 Brazilian soybean crop to 133.4 million metric tons, 12 million down from the potential production forecasted in early November and about 4 million metric tons smaller than the record crop harvested in 2020-21. Even before the failure in Rio Grande do Sul, Paraná (our number-two soybean producing state) also lost a significant part of its crop due to hot dry conditions in November and December, and further damage occurred in January. 

Drought-related losses have also been seen in Santa Catarina, another state in the South of the country, and in southern Mato Grosso do Sul, in central Brazil. The four states are normally impacted by unfavorable weather in La Niña years, but all of them being hit at the same time and with steep losses like these we have in 2022 is something relatively rare. 

Our neighbor Paraguay, where farmers have a crop calendar similar to what we have in western Paraná, also has a huge crop failure this year. Argentina, where soybean producers plant later, still has a chance after the very good rains seen in the second half of January, but a small part of their production seems to have been lost already. 

Theory vs. reality in forecasting crop production
An intense debate about the Brazilian soybean crop size has been in place since early January, with private and official estimates ranging from 126 million to 140 million metric tons. Brazil’s federal crop agency Conab and the USDA made relatively small cuts to their estimates in January, and now the market waits for the updates scheduled for February to see how closely the two forecasters will get to private estimates.

As I write this article in late January, my colleagues at AgRural work on a new revision that will result in a further cut in our soybean production estimate. In early January, we already cut yields in Rio Grande do Sul. Since the state plants in November and December (later than most Brazilian states), it was too early, in theory, to replace the trendline yields by actual estimates. 

But our agronomists, with boots on the ground (and not at an air-conditioned office like many other “forecasters” that make up their numbers looking at weather maps and doing some math with somebody else’s numbers) rang the alarm: very short plants in several fields were already blooming and setting pods, and then aborting many of them, while others were just dying. 

Although soybean indeterminate varieties are notorious for their recovery ability once weather conditions improve, the situation was critical in many areas, and worsening conditions during the month resulted in a disaster in the northwest of the state, a region that could produce about 11 million metric tons if it were not for the drought. Some areas planted very late in other regions of the state still have a chance if the weather improves in February, but Rio Grande do Sul already has a historical crop failure. And so does Paraná.

So what?
But what does all that mean to the U.S. farmer in addition to the higher prices we have already seen in Chicago? Despite the crop failure in the South, Brazilian production as a whole is not that bad and can still be the second or the third-largest on record, thanks to very good yields in other producing states such as Mato Grosso and Goiás. Exports in 2022 will not reach 90 million metric tons as expected, but they are not likely to fall much below last year’s 86.1 million metric tons.

Brazilian exports are likely to be strong until September, unless China decides to buy less, which is not impossible in face of weak crush margins they keep seeing there. If everything goes smoothly, with the Chinese and other importers taking advantage of the gap between U.S. and Brazilian prices (ours have been more competitive due to our currency, ocean freight rates and the harvest window), Brazil will be almost out of soybeans at the fourth quarter of the year, as it happened in 2020 (but not in 2021). Domestic buyers will bid higher, making importers more avid for U.S. soybeans, if the U.S. has a good 2022-23 crop.