Insight Focus
- Brazil’s 2021/22 soybean exports are likely to be less than 80m tonnes, below earlier forecasts of 94m,
- Crop failure and a larger crush have played a role in this, but weakening Chinese demand is too.
- Recovery in Chinese consumption will be key to avoiding oversupply in Brazil in 2022/23.
Earlier this month the US Department of Agriculture made another cut to its Brazilian soybean export estimate for the 2021/22 marketing year, which started last October and will end on 30 September. The volume is now projected at 80m tonnes – 14m below the highest estimate for this season, which was kept unchanged until January when Brazil’s drought-related crop failure was confirmed. The projection is also smaller than the 82.8m tonnes estimated in April, when Brazilian shipments began to lose steam, and the 81m tonnes released in July.
Brazilian soybean exports have been pressured this season mainly by lower production (124m-126m tonnes, depending on the estimate, compared with an initial potential of 145m) and weakening Chinese demand. The USDA’s first estimates for 2021/22 put Chinese imports at record high 103m tonnes. But the crop failure in Brazil, the sharp increase in international soybean prices and the hardships faced in by the Chinese pork sector (a result of the imbalance between supply and demand, which led to lower pork prices at a time of soaring production costs) made the USDA cut its soybean import estimates for China several times in recent months, until reducing it to 90m tonnes in July, a figure that was left unchanged in August.
Weaker August, September
Brazilian Department of Foreign Trade data shows that soybean exports to all destinations totalled 69.1m tonnes between October 2021 and July 2022. To end the 2021/22 marketing year with exports of 80m tonnes as the USDA is forecasting, Brazil would have to ship 10.9m tonnes in August and September. The problem is that August exports are likely to be less than 6m tonnes, below the 6.5m a year earlier. To make things worse, demand for September is weaker than expected.
Therefore, a further cut in the USDA estimate cannot be not ruled out, leaving Brazil’s exports at 79m tonnes or even a little less. The total volume for 2021/22 might have been even lower, were it not for high Brazilian exports in the fourth quarter of 2021 (the beginning of the season, in the USDA calendar), when Brazil immediately plugged in the gap left by logistical problems that slowed US shipments.
Betting on the US Crop
Earlier this year, the expectation was that Brazil could still ship more soybeans in August and September than in the same months of 2021. But with higher prices (spurred by farmers’ reluctance to sell), a record US high crop and 9.6m tonnes of US soybeans already sold for shipment to China from 1 September onwards, Brazilian exports are likely to fall even further.
Still pressured by slow demand for soybean meal and negative margins, Chinese crushers have reduced their purchases of Brazilian soybeans for September shipment. Brazil’s resistance to lowering prices means the Chinese prefer to buy from the US for shipment in Q4, a period in which newly harvested US soybeans dominate the market and are usually more competitively priced.
Other Destinations Also Falter
Unlike the USDA, which uses an October-September marketing year, in Brazil the soybean export season coincides with the calendar year. From January 2022 to July 2022, the country exported 60.5m tonnes, compared with 66.2m a year earlier. China was the destination for 40.4m tonnes, down from 45.6m over the same period of 2021. The other destinations, headed by the EU, Thailand and Turkey, took 20.2m tonnes, little changed from the same period last year, signalling a possible reversal of the uptrend in 2020 and 2021.
Due to the slowdown in Chinese imports and signs that purchases from other destinations are unlikely to grow significantly this year, Brazilian soybean exports are expected to end 2022 at around 75m tonnes, below a record 86.1m in 2021, when Brazilian production was higher and China’s soybean meal demand was turbo-charged by the recovery in its pig herd after the African Swine Fever outbreak.
Tight Stocks
Not that this drop in exports is causing too much damage. Although the volume exported from January to July fell 8.6% compared with the first seven months of 2021, higher soybean prices resulted in revenue of USD 35.2b FOB basis, 23% more than a year earlier. In addition, the increase in international demand for soybean oil and meal from Brazil has boosted crushing margins, leading to an increase in soybean use even in a year marked by a massive crop failure. Therefore, the expectation is that Brazilian soybean ending stocks will fall by 22%, according to an estimate from federal crop agency Conab, and 31%, according to Abiove (Brazilian Association of Vegetable Oil Industries).
Mismatching numbers in 2023?
With 2022 almost over as far as Brazilian soybean exports go, farmers should be aware that the tight stocks expected for the end of the year could be quickly topped up by oversupply in 2023. Although Chinese imports are likely to grow in 2022/23 (the USDA sees an increase to 98m from 90mtonnes, while Casde, an agency of the Chinese government, puts imports at 95m tonnes, only 4m higher than in 2021/22), Brazilian production has the potential for greater growth in 2022/23 crop. Assuming normal weather and given the first planting intention numbers that have been released by the USDA and local consultancies, production could jump to 146m-152m tonnes in 2022/23 from 124m-126m in 2021/22.
A Glimpse of the Future
Marked in recent decades by a growth rate similar to that of Chinese consumption, soybean production in Brazil has the potential to continue growing rapidly in the coming years, due to the conversion of degraded pastures into cropland. A projection by the Ministry of Agriculture released last year indicates that Brazil’s soybean production could hit 206m tonnes in the 2030/31 crop.
Chinese consumption also has significant growth potential. A USDA estimate shows that China’s soybean imports could reach 137.5m tonnes in 2030/31. Brazil’s total exports, in turn, are estimated at 131.8m tonnes, as other exporters’ share is likely to shrink in the coming years.
In an alternative scenario of weakening Chinese consumption, however, Brazil will have to choose between reducing its dependence on imports by China expanding the market for its soybeans, meal and oil; or putting the brakes on its acreage expansion.
Dashboards that may be of interest…
