The big commodity producers and buyers in this world are well known if you’re a grain farmer. Brazil is growing more and more soybeans while China is increasingly eager to build investment and trade with South America. Brazil is our farming rival and both countries compete for sales to China.

How might these relationships change in the next few years? We asked Rabobank Global Grains & Oilseed Strategist Stephen Nicholson to share his insights:

In the short term will Brazil’s production pressure corn or soybean prices?

Nicholson: This year Brazil’s soybean crop is big – estimated at 153 million metric tons. Some 50% of the safrinha (second crop corn) planting was in the optimal yield window, and 50% was not.

We’re in a bifurcated (split) market now. Traders say we’re bearish. I understand the bear argument – demand is bad, recession is coming, Brazil has a big crop. But you don’t see much change in domestic demand from a recession. You do see impact on exports, but it’s usually due to high prices.

So why are we then still at $14 or $15 beans? It’s because stocks are still tight, and there are low stocks among the exporters. If you’re bearish I’ll take the over under on the weather, and I haven’t had a taker on the weather yet.

For years we’ve been hearing about Brazil’s crop expansion. Is that still the big talking point when it comes to South America?

The bigger issue is having the infrastructure in place to move a late soybean crop coming on and a monster corn crop after that. We’ve seen investment infrastructure at the farm level, and new investments in the ports, but not that investment in between. And oh by the way, they have a big sugarcane crop coming, too. A couple grain companies in Brazil have bought thousands of trucks to move more grain, but they haven’t made better roads.

We’ll see if Brazil can do all this. This could be a nightmare for Brazil, but a positive for U.S. farmers.

What do you think will need to happen to cause Brazil to improve infrastructure?

It’s always very slow to get things done there. Brazil, not unlike the U.S., had a big change of administration, and now we’re back to President Lula. This causes disruption.

China is going to be more of a player moving Brazilian infrastructure forward, because China wants Brazilian goods. China has its own issues back home, and someone is going to wonder why they aren’t taking care of business at home. Granted it’s not a democracy, but we don’t really have a clue what’s going on back there with internal politics.

How do you see the relationship between Brazil and China?

China is not self-sufficient in food. When China makes an investment, they want something back. They want commodities, they want that return on investment, they want to be at the table.

Is China investing in Brazil a national security threat to the U.S.?

In the short term, no. But it brings up more questions than answers because it threatens our ability to export product; you have a nimbler competitor. I’m not trying to be a ‘red menace,’ but do I want China investing in our hemisphere? That’s a little concerning.

China is extremely complex and complicated. My concern is, have we -the U.S. government - really thought how we are going to deal with them strategically? What do we want from China? Just because we welcomed them in to WTO and had a kumbaya moment, it doesn’t mean they’re going to behave.

Are you worried about China aggression?

I don’t believe they will invade Taiwan if that’s what you’re asking. They saw what happened to Russia in Ukraine. They want to be able to manufacture and send goods to the United States or Europe. If you watch China over the last month, they’re cozying up to Europe. A lot of it is show for the Chinese Communist Party back home.

The reality is, China is extremely pragmatic and will do what’s good for them in the end.

American farmers worry about exports to China, but will it matter once new renewable diesel plants come online in the next four years?

California, Oregon, Washington, and British Columbia passed low carbon fuel standards, so these renewable diesel plants are going to be built. It’s happening. If you look at EIA (Energy Information Administration) data, renewable diesel has now surpassed biodiesel, which has stable but declining demand.

The other thing is, depending on how renewable fuel plants are built, plants will also be able to produce sustainable aviation fuel.

If you look at the soybean crushing facilities being built over the next four or five years, it will require about 750 million more bushels, or 14 to 15 million more acres. But we don’t see that big of a soybean acre increase immediately. We see soybean acres in ‘23 at 89.4 million, and 90.4 million for corn. As we look to the next five years we expect soybean acres to rise to 94 million acres, so maybe an additional five million acres.

We do see exports coming down, but we don’t see exports collapsing. This is a trend we’re wondering about here and in Brazil. With domestic demand continuing to rise, there’s potential to see a pullback of volume available for exports, no matter the destination.

If you’re an importer, and the pot of soybeans is only so big, you have to pay up to get some of that pot. With renewable diesel we don’t have enough feedstock and not enough acres to feed these crushing plants. You could see some acreage realignment in the Delta, for example. Rice and cotton acres are under pressure. Those farmers are planting more corn and soybeans that require less management time. The yield and profitability is there.

What’s it all mean? There will be a fight for acres between not just the major crops but also canola, rice, cotton, and hay. There’s a serious market reckoning that is yet to take place.

Would the United States ever import Brazilian beans to feed this new capacity?

In the short term no, but long term, maybe. We don’t have a good setup to do that. We’ve talked about that for years – that the U.S. will produce corn and Brazil produce beans. But it’s never materialized. China likes to dangle us on a string if they have Brazil as an option. If I’m a buyer I want more choices than just one.

Will we see another food-vs-fuel debate like we did with ethanol 15 years ago?

The food-fuel debate already heated back up in Europe. It’s food vs fuel vs feed vs climate change; It’s a zero sum game. If I take away something on the food or feed side because of climate change, I’m going to have a reduction on the fuel side. In some ways that debate is, do you starve people, starve my car, or starve the climate?

As an economist you want the economic pie to grow so more benefit, but you’re dealing with a finite number of acres, weather, and climate. I can’t control two of those things right off the bat.

Do you think the U.S. economy is headed for recession?

The economy is in a holding pattern, trying to figure itself out. I do worry that a slowdown is in the offing. Interest rates haven’t slowed people down from buying stuff. People are still eating meat, even though it’s not cheap. Milk and eggs, same story. On the other hand, consumer debt has gotten too high. It’s worrisome, but people are still working, people are still getting paid. They have cash flow and if you have that, you spend it.

The Federal government injected a lot of money into the economy due to the pandemic. In hindsight were these good decisions?

To be fair, we also had Trump’s Tax cuts and the MFP (Market Facilitation Program) payments causing inflation. But to your point, with the pandemic handouts, was anybody surprised when we ended up with this current level of inflation? It seems like, looking back, there must have been a better way.

Rather than just give everyone a check, we should have spent it on education or infrastructure that put people to work, efforts to build and support a robust economy longer-term.