The News & What it Means – Good Weather Helping to Widen US-Brazil Soy Divide

By John DePutter & Dave Milne – November 20, 2019
The News:

“Widespread rainfall is expected (in Brazil) during the six- to 10-day period, which will further boost soil moisture in northern areas and also lead to improvements across central areas, favouring corn and soybean growth.”

Reuters, November 18, 2019
What it means:

In the simplest terms, better weather means the potential for larger South American production. But the implications are far greater in the bigger picture.

As all North American farmers know, Brazil and Argentina are already major competitors in international markets, and the ongoing US-China trade war has reshaped global trade flows to the point where it has become a serious question as to whether things will ever go back to normal.

US soy exports down, Brazil up

Take soybeans for example. As the commodity most impacted by the trade dispute, American soybean production and exports have both been negatively impacted, while Brazil has benefited. With China buying considerably less, US soybean exports for 2019-20 are currently projected by the USDA at 48.3 million tonnes, up slightly from the previous year but almost 10 million or 17% below the pre-trade war level of 2017-18. Meanwhile, with China buying more, Brazil soybean exports for 2019-20 are projected by the USDA at 76.5 million tonnes, up from 74.8 million in 2018-19 and the highest in at least three years.

Predictably, as exports have risen and fallen, soybean production in the US and Brazil has responded accordingly. For 2019, US soybean output is estimated to fall by about 20%, while Brazilian output is projected at a new record high of 123 million tonnes, up from 117 million a year earlier.

It’s fair to assume that US soybean production would have declined this year, regardless of the trade war. Strong prices the past number of years had spurred a significant increase in planted area all around the world and rising stockpiles and lower prices were signaling to producers to cut back. But in the case of the US, the trade war has served to only deepen the reductions, while the opposite is true in Brazil.

Of course, the 2019-20 soybean crop in Brazil still has a long road to travel to the bin. Planting is well advanced in the major central farming areas, and the weather over the next couple of months will have much to say about final production.

Trade war the new normal?

But if the weather is good and Brazilian production measures up, China will have one more reason to keep its distance from US supplies. And if the current trade war does indeed become the so-called ‘new normal,’ it becomes easier to see the US soybean industry taking a back seat to Brazil, in terms of future exports and production.

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