January 5, 2021
Harvest will soon begin on Brazil’s soybean crop. There are big dynamics at play in South America this year that will likely impact U.S. soy growers.
Brazilian soybean stocks continue to be scarce after exporting the majority of its supplies to China earlier last year. China only bought 100.7 million bushels of Brazilian soybeans in November 2020, down 29% from the previous year.
A record crop?
Growing conditions in top Brazilian soy-producing region Mato Grosso remain steady despite a dry planting season, thanks to mid-December rains. Even if conservative estimates of 4.8 billion bushels of 2020 Brazilian soybean production are realized, the 2020/21 haul will be 4% higher than 2019’s harvest of 4.6 billion bushels.
But could Brazil be in danger of over-exporting to China again? It’s not impossible, considering strong domestic commodity prices. As of December 2020, 70% of the 2020 Brazilian crop, due to be harvested over the next few weeks, has been forward sold, tightening global soybean liquidity.
Brazil has already imported 22 million bushels of soybeans to tide over tight supplies from the 2019/20 marketing year. In that same time frame, Brazilian soybean exports totaled a record-setting 73% of 2019 production. As of mid-December, only 64% of 2020/21 Brazilian soybean production is earmarked for export channels.
Chinese demand rises
But Chinese demand continues to strengthen on strong soyoil demand from consumers early in the year and recovering hog demand. China expects its pig herd volumes to be fully recovered to pre-2018 African swine fever outbreak levels in the first quarter of 2021. And with domestic demand for meat on the upswing in China, the world’s second largest economy will not likely slow soybean buying rates anytime soon.
As of late 2020, Chinese and unknown buyers still had 500 million bushels of U.S. soybeans scheduled to ship. That’s 36% of their total 2020/21 commitments during the current marketing year. U.S. soybean export loading paces typically fade in late December as Chinese buyers await the cheaper South American crop, which could take the top off late 2020 soybean price highs.
Timing is key
It creates a tricky situation for producers navigating 2021 acreage intentions. Chinese demand for U.S. soybeans typically falls as producers are making 2021 planting decisions. While the volumes are likely to remain strong, the timing of the sales will be more critical than ever in ensuring producer profitability.
Argentina ended 2020 with a multi-week grain inspectors and oilseed workers strike that stalled the loading of at least 162 cargo ships. U.S. soymeal saw a demand boost from new international customers left hanging by Argentina’s high inflation woes. Further economic unrest could further disrupt soy flows out of Argentina, the world’s largest exporter of soymeal, which the U.S. could benefit from if the timing aligns.
Timing is the only question that remains. Will a dry planting season stall Brazilian soybeans from hitting the export market early? Will China completely abandon U.S. soybeans in favor of the Brazilian crop for the next six months? And most importantly – does your marketing plan account for the possibility of these scenarios?
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