By Daniele Siqueira, Head of Market Intelligence with Brazilian consultancy AgRural
Brazil’s agriculture has established fresh records in 2023, setting new all-time highs for corn and soybean production. Even facing the phenomenon La Niña for a third consecutive year, the country was able to produce 155 million metric tons of soybeans. Only one state, Rio Grande do Sul, at Brazil’s southern end, had a drought-related crop failure, but other states made up for the losses, with record yields almost everywhere.
Corn production, driven by the second crop (known as “safrinha” and planted right after the soybean harvest), had a bad start caused by planting delays. But farmers were very fortunate after that, receiving beneficial rains even in the driest months of the year and escaping from frosts in states where temperatures normally drop during pollination and grain filling. As a result, Brazil was able to produce 132 million metric tons, well above the already good 113 million harvested in the previous year.
With such good production in the 2022/23 season, Brazil is also headed to new export records in the calendar year of 2023. From Jan 2023 to Oct 2023, Brazil shipped 92.8 million metric tons of soybeans, which already is a new annual record, leaving behind the 86.1 million exported in the entire year of 2021. The expectation is that the 2023 total volume reaches something between 98 million and 100 million metric tons.
Brazilian corn exports are still in full swing, as they concentrate in the second half of the year, but they are also headed to a new high, with the potential to surpass the record 43.2 million metric tons shipped in 2022. From Jan. 2023 to Oct. 2023, corn shipments totaled 42.5 million metric tons, well above the 34.4 million and the 31.1 million metric tons shipped in the same period in 2019 and 2022, respectively.
Historically low levels in rivers that serve the so-called Northern Arc ports, along with very busy vessel line-ups in southern and southeastern ports might take a toll on corn shipments scheduled for Nov. 2023 and Dec. 2023. Even so, Brazil is likely to export at least 52 million metric tons of corn in 2023, surpassing the U.S. and becoming the world’s number-one corn exporter, at least momentarily.
Lower prices since 2020
But all those good numbers and prospects came at a price — a low price received by Brazilian farmers. Hoping that soybean prices would go higher during Brazil’s harvest (not a common thing, but that had happened in the three previous seasons, for different reasons), producers decided to wait.
By the end of Jan. 2023, when the 2022/23 soybean harvest was starting to pick up, only 26% of the estimated production had been sold by farmers, compared with 46% in the five-year average, according to AgRural data.
Although Chicago quotes were not that bad by that time, especially because of the tight U.S. supplies and a historical crop failure in drought-bitten Argentina, Brazilian prices just collapsed. Pressured by record-low export discounts, prices received by farmers rapidly stumbled from record highs to the lowest level since early 2020.
Things headed south
That happened due to a combination of three main factors: the slow forward selling pace; the lack of storage capacity in the face of a surprisingly big crop, and sluggish Chinese demand. Aware of the setbacks faced by Brazilian farmers and accounting for 70% of Brazil’s total soybean exports, China knew that producers were at a dead end. The result: a steep decline in export premiums, which turned into record discounts, farmers selling in panic mode, and very interesting prices for Chinese buyers to build stocks.
Although China is not that important in the Brazilian corn market (not yet), a similar movement happened with corn prices, which also fell to their lowest level since early 2020 in Brazil, resulting in net losses for many farmers that planted the 2023 “safrinha” with high costs and then harvested a huge production amid slow forward selling and storage deficit.
And it is not that Brazil hasn’t invested in storage. Since 2015, the country’s storage grain capacity increased by 11%. Too little, though, when compared to the 71% increase seen in soybean, corn, rice, and wheat production during the same period.
The same mistake again
Have Brazilian farmers learned something from the mistakes made in the 2022/23 season? Not really. Forward sales for delivery in 2024 are slower than normal for both soybeans and corn, as farmers wait for higher prices down the road. It is not impossible, but it is always a big risk. (And no, most Brazilian farmers just don’t hedge.)
The 2023/24 soybean crop acreage is 3.4% higher, with a potential production calculated at 165 million metric tons, up 10 million from last year. The planting season has been complicated, with too much rain in the South and dryness in the central and northern states. But right now, as I write this article in early November, it is still too early to cut production. Soybeans are soybeans, after all.
It is good to keep in mind, however, that El Niño years might weigh on yields in central and northern states, including top producer Mato Grosso. In this state, some areas are already blooming or even setting the first pods under low moisture conditions.
Moreover, some areas need replanting, and that will impact the 2024 second corn crop planting window. That crop, by the way, is very likely to see a significant acreage reduction across Brazil, making it hard for the country to keep exporting so much corn next year.