- For the first time in 25 years, soybean April shipments fell from March.
- April exports totaled 11.6m tonnes, 28% down on the year and the lowest for the month since 2019.
- China’s share of Brazilian soybean exports in Jan-Apr is the lowest for the period since 2012.
Preliminary data released late last week by Brazilian customs confirmed an expected drop in soybean exports. Brazil shipped 11.6m tonnes in April, 28% down on the year and the smallest volume for the month since 2019. In addition, April exports fell from March for the first time since 1997, when the Brazilian government started monitoring exports on a monthly basis.
As a result, cumulative exports since the beginning of 2022 were 32.6m tonnes, still a record high for the first four months of the yeardue to the strong pace up until March. But now monthly volumes are likely to fall year on year until late 2022, which is likely to end with about 77m tonnes exported compared with a record-high of 86m tonnes in 2021.
The projected drop in Brazilian soybean exports is due to a smaller production in the 2021/22 crop, which fell from an initial potential of 145m tonnes to 122.7 million, according to the latest estimate released by AgRural, pressured by hot, dry conditions that hit southern states between December and February. With 96% of the area harvested as of May 5, the next revisions to the production estimate should bring little change to the numbers.
Chinese slowdown
The main reason for the projected drop in Brazilian exports in 2022, however, is diminishing Chinese demand. Soybean use has slowed down there because local pork prices are pressured by sluggish consumption and the quick recovery in the Chinese pig herd over the last two years, following the huge losses caused by African swine fever. With low pork prices on the one hand and record-high production costs on the other, producers have cut their soybean meal demand, and that is eating into China’s soybean imports.
From January to April, China was the destination for around 22.9m tonnes of Brazilian soybeans. The volume is slightly larger than the 22.6m tonnes shipped a year earlier, but it is smaller than in the first four months of 2020 and accounts for “only” 70.2% of total Brazilian exports. It is the lowest Chinese share for the period since 2012.
Brazilian soybean exports to other destinations, especially the European Union, Turkey, Thailand and Bangladesh, have grown over the past few years. Increasing sales to a greater number of clients is something always to be welcomed, especially in a market like this, in which a single buyer has such a great share as China, whose voracity for soybeans is closely related to the growth in Brazilian production. in recent years.
But the Asian country is still a key force for the Brazilian supply and demand balance. Now in 2022, the weakening Chinese demand is not hurting the soybean prices received by farmers in Brazil because they are supported by a few bullish factors: the 2021/22 crop failure; the relatively weak Real, which favors profitability in the local currency; the tight supplies in the US; and last, but not least, the liquidity cushion provided to Chicago traded volumes and quotes by monetary and fiscal policies conducted around the world to fight the economic impact of the COVID-19 pandemics.
Meal and oil shine
Another factor limiting the impact of weakening Chinese demand on Brazilian soybean prices is soymeal and soyoil prices and exports, which have been benefited from shrinking supplies and/or shipments from countries that are major players in those markets or in substitute products, such as Argentina, Indonesia and Ukraine.
From January to April, Brazilian soybean meal exports totaled 6.3m tonnes, while oil shipments reached 745k tonnes, up 36% and 75%, respectively, from the same period last year. In both cases, it was the highest volume in the first four months of the year since the data began in 1997.
Dangerous last quarter
Brazil normally exports few soybeans in the last quarter of the year, when the US dominates the international market with its freshly harvested production and Brazilian domestic crushers bid higher than exporters to secure supplies until January, when harvesting of the new domestic crop begins.
Aware of that dynamics and pressured by the 2021/22 crop failure in Brazil, Chinese importers have already taken precautions and purchased 7.3m tonnes of the 2022/23 US crop, which will be shipped from Sep 1 onwards. That is much more than what China had bought in the same period last year (3.1m tonnes of the 2021/22 crop) and also exceeds the five-year average (1m tonnes).
Therefore, assuming normal yields in the new US crop, Brazil is likely to export even fewer soybeans than normal in the last quarter of 2022. Farmers, however, hope that prices will continue to rise towards the end of the year. For that reason, they have been slow sellers. By Apr 30, about 73m tonnes of soybeans (59.5% of the 2021/22 production) had been sold, ompared to 96m tonnes (69.5%) in the same period of last year.
This strategy of selling later in the year will be successful if the U.S. 2022/23 crop faces weather problems and/or if the Brazilian Real depreciates even more in the second half of 2022 – something common in presidential election years such as 2022. But, with a lot of soybeans yet to be sold and China already well supplied by the US for the last months of 2022, it remains to be seen whether Brazilian crushers will reach the end of the year with enough money in their pockets to pay the kind of prices producers want for their soybeans. For this to happen, soymeal and oil exports will have to remain high.
