The News & What it Means – Get Used to Brazil Outproducing the U.S. on Soybeans

By John DePutter & Dave Milne – January 7, 2020
The News:

“Brazil will top the U.S. as the world’s largest soybean producer in 2019-20, according to a new USDA report.”

Syngenta Market News, January 6, 2019
What it means:

This was always coming, and it’s likely to become more the rule rather than exception on an annual basis.

As noted in the article above, the fact Brazil will outproduce the U.S. in 2019-20 is hardly unprecedented. In fact, it was just a couple of years ago that a record-large Brazilian crop of 122 million topped the American crop by about 2 million tonnes. This year, however, Brazil is expected to produce a crop of 123.5 million tonnes, up from 117 million a year earlier and easily above the 2019 U.S. crop of 96.62 million.

The gains in Brazilian soy production can be traced back to the extreme high prices that culminated in 2012, motivating farmers all around the world to produce more. The lower prices of 2016 and 2017 would normally have caused production cutbacks, but the fact most other crop prices were weaker as well-meant farmers stayed with soybeans nonetheless.

Trade war shifts China demand to Brazil from U.S.

Then came U.S. President Donald Trump’s trade war, which motivated China – the world’s top soybean buyer and the largest U.S. customer – to look for other suppliers, something the Chinese were doing anyway. Of course, the biggest store outside of the U.S. to shop at was Brazil. Buoyed by that additional demand and the local price strength that came with it, Brazilian producers seeded another big soybean crop for 2019-20. With mostly good weather thus far, the country is on track to produce what could be a new record large crop.

It remains to be seen how the so-called phase one trade agreement in late December between the U.S. and China will ultimately impact Chinese demand for U.S. and Brazilian beans. However, it does seem likely China will continue to maintain its trade relationships with Brazil, especially given Trump’s mercurial nature along with the common sense of diversifying the country’s supply source. At this time, the USDA is projecting Brazil’s 2019-20 soybean exports to hold up despite the trade deal. The country’s exports are predicted to reach 75 million tonnes, up 2 million from a year earlier.

Acreage expanding, infrastructure improving

Meanwhile, Brazil is continuing to improve its much-maligned export infrastructure. Agriculture giants, including Bunge and Cargill, have spent millions building new terminals and developing routes to ports in the country’s north through the Amazon region. The Amazon shortcut has reduced travel time from fields to ports, helping to address a problem that has long bedeviled a Brazilian soybean industry that has typically relied on trucks and vast stretches of unpaved, muddy roads to get crops to waiting ships.

What’s more, Brazil also maintains plenty of upside production potential in terms of available land. Right or wrong, the country’s president, Jair Bolsonaro, has lifted many of the environmental restrictions in the Amazon, allowing farmers the opportunity to expand their operations. Earlier this year, a government report suggested Brazil soy planted area could increase more than 26% to almost 112 million acres by 2029, with production increasing by about one-third to almost 152 million tonnes. But even those gaudy numbers may be conservative, especially when one considers soybean acreage in the country has actually expanded by 6-7% on an annual basis over the past decade. The government report indicates an annual expansion rate of just 2-3%.

Yields up with added inputs

It should also be noted Brazil has lots of potential to increase soybean yields as well. Obviously, Mother Nature has much to say about productivity, but soybean yields in Brazil have risen an estimated 23% over the last decade. Some yields topped 50 bu/acre in some localized parts of the country last year, and farmers are showing a willingness to invest in pesticides, herbicides and other inputs.

Add it all up and you have the potential for increasingly large Brazilian production, enough to keep it ahead of the U.S. as the world’s No. 1 producer not just some of the time, but all of the time.

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