What a year! (And it’s still March)

By Daniele Siqueira, AgRural Commodities Agrícolas

March has arrived and that means that another Brazilian soybean crop is wrapping up and the new U.S. crop is just around the corner. It has been quite a season, with hot, dry conditions decimating a significant part of the production in southern Brazil.

Daniele Siqueira

With about 50% of the 2021/22 harvest complete by the end of February, production is estimated at around 125 million metric tons, 20 million down from the initial estimates thanks to a harsh drought sponsored by La Niña, the devilish girl.

Selling at record prices (but just a little)
The crop failure in southern Brazil, along with a disaster in Paraguay (production is more than 50% smaller than it would be in a normal year) and some losses in Argentina, where the soybean fields still need rain in March to avoid major yield losses, has helped support higher prices in Chicago since the beginning of the year. In Brazil, prices have skyrocketed to historical levels during harvest, which is clearly not normal, spurred by Chicago, aggressive domestic bids and stronger export premiums.

Even so, farmers have been resisting to sell, in hopes that prices will get even higher over the next few months. According to AgRural, producers had sold about 56 million metric tons of the new crop by the end of February, compared to 87 million metric tons in the same period a year ago.

Slower-than-expected exports
But Brazilian 2022 soybeans exports, which were estimated at 90 million metric tons when farmers started planting, will hardly reach 80 million (compared to 86 million metric tons in 2021) due to the crop failure in the South. To make things worse, February was extremely rainy in Mato Grosso, Brazil’s top producer and exporter.

The state has a bumper crop of approximately 39 million metric tons (10% more than Illinois and Iowa’s production combined, to give you an idea), but above-normal rainfall during harvest weighed on the crop quality, resulting in excessive grain moisture.

As a result, moving those soybeans to elevators and then to the export channels has been a slow task, since farmers need to wait for better quality soybeans to blend them with those impacted by the bad weather in order to reach export standards.

Now in 2022 Brazilian exports have already established fresh-new records for January and February, but shipments could have been larger if it wasn’t for the quality issues in Mato Grosso and the crop failure in the South, which has also resulted in lower quality and delays.

Switch to the U.S.
Those delays and the hard time that Brazilian farmers have given to international buyers, who haven’t been able to originate much even when they push export premiums to historical levels, have already resulted in a partial switch to U.S. soybeans since January, with China buying both for prompt delivery and for shipment in the fourth quarter, when the 2022/23 U.S. crop enters the market.

But with a strong crushing pace and relatively small stocks in the U.S., Brazil will be virtually the only place with soybeans to sell between May and September, and Chinese and other importers will probably have to bid higher if they want to take those soybeans home. Prices are not even higher right now because the Chinese demand is not as strong as it used to be a couple of years ago — and that is another issue that we will have to deal with during the year.

Two different realities
In terms of farm revenue, this season we have two distinct countries within Brazil: the central and northern states, which have a bumper crop that is being sold little by little at historically high prices, and the South, where farmers face severe yield losses and a fragile insurance system. Their hopes, at least in areas suitable to do that, are placed in the second corn crop, but it is already being planted under less-than-ideal conditions, since soil moisture levels are not normal yet and the planting window is closing.

Another concern is the next soybean and summer corn crop, which will be planted from September to December. Production costs have exploded and access to fertilizers is in jeopardy due to the war between Russia and Ukraine. Brazil imports 85% of its fertilizers and Russia and Belarus are among our main suppliers.

What a start to the year! And with this article, I say farewell and wish you all the best in your 2022/23 crop.

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