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Dependable Brazilian Crop Unlikely To Back Soybean Optimists

Soybean markets have faced some headwinds in recent weeks with global stockpiles swelling above expectations, though Brazilian farmers are still planting their upcoming harvest and the outcome is still far in the future.

However, it has been a few years since Brazil’s soybean crop came up short as the growing season usually coincides with reliably favorable weather. The odds are good in any given year that Brazil’s crop will meet or exceed expectations, ensuring exportable supplies.

Brazil, the leading producer and exporter of soybeans, is off to an efficient start on its planting efforts. Nationally, planting progress was estimated between 36% and 38% complete late last week, ahead of the 27% that is more typical of the date.

Planting is well ahead of normal in top grower Mato Grosso, but farther south in No. 2 Parana, progress is slightly lagging. However, southern areas are getting much-needed rain following the dry winter.

Faster planting does not necessarily ensure bigger yields, though it means earlier supply availability barring harvest disruptions. Traders will be watching Brazil’s growing weather in the coming months, but a bullish price story is unlikely to unfold on the production side.

PERSEVERANCE

Brazil’s soy crop can thrive even under drier-than-normal conditions, especially in the north, because of how much rainfall occurs. Accumulation in December, a key month for yields, averages around 220 mm (8.7 inches) in Mato Grosso’s primary production area.

For comparison, top U.S. soy producer Illinois averages about 3.65 inches in August. Southern Brazil can also expect decent rainfall, with December and January totals in Parana each averaging at least 6.5 inches.

Mato Grosso has had only one truly lousy soybean harvest in the last decade or so, and that was in early 2016 after an unusually dry stretch the year before. Excessive, prolonged heat combined with the dryness cut yields down by more than 10%.

Coincidentally, Brazil’s 2015-16 soybean harvest was the only one of the past nine where the U.S. Department of Agriculture’s initial peg was too high. The margin was only 1.3 million tonnes (1%) between initial and final, suggesting Brazil’s worst years are not really that bad.

Brazilian statistics body Conab has had a similar tendency of being too conservative on production. The agencies’ estimates tend to move closer to the final during planting once more is known about area, but they have been seemingly slower to adopt Brazil’s recent yield trend.

USDA has projected Brazil’s 2021-22 soybean output at a record 144 million tonnes, up 5% on the year, though Conab is less aggressive at 140.8 million tonnes.

Brazil’s yields have surpassed those of the United States in recent years, though they have been comparable for more than two decades. Brazil’s five-year average yield is 3.45 tonnes per hectare (51.3 bushels per acre) versus 3.36 tonnes per hectare (50 bpa) for the United States, according to USDA data.

The corn crop in Brazil is much less stable than soybeans, especially with the rise of second-crop corn plantings in the last decade. A large chunk of Brazil enters its dry season during that growing window, which can limit yields if the rains shut off early, and colder temperatures can threaten in the south.

EXPORT EDGE

Mato Grosso is among the first states to harvest soybeans, so exports can accelerate when farmers there start making progress. In years where those soybeans were planted quickly, like 2018 and 2019, harvest also accelerated quickly in late January and February.

Brazil’s soybean exports got off to a faster start early in 2019 and 2020, edging out U.S. exporters at the tail end of their season. Even in early 2021 when Brazil’s soy harvest was late, exporters made up for the lag with huge record efforts in March, April and May.

Brazil’s delayed campaign a year ago extended the U.S. shipping window through January, but the big push out of Brazil in the following months sent U.S. exports to historical lows in their off-season.

The looming Brazilian harvest is already jeopardizing U.S. potential. Soybean export prices out of Brazil for early 2022 are much more attractive than current U.S. ones at a time when U.S. sales should be strong. Top buyer China has not recently shown heightened, consistent interest in the U.S. oilseed.
Source: Reuters (Reporting by Karen Braun; Editing by Matthew Lewis)

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