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Port premiums protect Brazilian soybean prices, to boost 2019-20 crop: Agroconsult

Soybean port premiums acted as a buffer and left Brazilian producers nearly unaffected after two recent major “earthquakes” in the global market — African swine fever outbreaks and the US-China trade dispute — said Andre Pessoa, market analyst at Agroconsult.

Speaking to market participants at an annual event organized by the national grains exporters association ANEC, Pessoa said the current domestic prices allowed farmers to have a profitable 2018-19 crop — all of which has been nearly sold — and will help them have another favorable season in 2019-20.

“We had two earthquakes in the market [in 2018 and 2019]: African swine fever, which affected pork heard in China and the country’s soybean demand, and the trade war between China and the US.”

“However, Brazilian domestic prices were not strongly affected. In some moments, we had higher soybean CBOT prices and less port premiums [in Brazil]. In other moments, CBOT was lower and premiums were higher,” he said.

S&P Global Platts SOYBEX Santos (soybean outright price assessments at Santos port), which is calculated daily incorporating port premiums assessments and CBOT settlements, did not change considerably throughout 2019.

SOYBEX Santos started the year at $352.02/mt, being assessed only 8% higher at its peak on October 23 and 8% lower at its bottom on May 6. On Wednesday, SOYBEX Santos was assessed at $365.07/mt, 3.7% higher from January 2.

“Current [harvested] crop was sold at good prices. Whatever is left will be sold even better. And in 2019-20, farmers will see similar profitability,” said Andre Pessoa during the largest annual grains industry gathering in Brazil.

Brazil will finish exporting the 2018-19 crop mostly by the end of December, while the 2019-20 crop has almost completely been planted. Harvest will kick off in mid-late January, hitting the ports February onwards.

Agroconsult estimates the farmers profitability — measured in bags (60 kg) per hectare in order to incorporate all production costs, like fertilizers, seeds, chemicals and fuel along with all the farm yields — will remain healthy.

According to Agroconsult, in Sorriso city, Mato Grosso state, farmers will profit 13 bags/ha in 2019-20, up from 12 bags/ha in 2018-19. In Londrina, Parana state, profit will be of 12 bags/ha, up from 6 bags/ha in the past season. In Rio Grande do Sul state, however, profit will be 19 bags/ha, down from 22 bags/ha previously.

Brazilian farmers produced an average of 54.6 bags/ha in 2018-19.

HIGHER PRODUCTION
The positive margins expected by farmers will boost planting and production in Brazil in 2019-20, the head of Agroconsult said.

The area planted with soybeans will reach 36.7 million ha this new season, up from 36 million ha in 2018-19.

Considering weather conditions returning back to normal, yields will improve to 56.1 bags/ha, according to Agroconsult. All that will lead to a record production of 124 million mt in 2019-20, up from 118 million mt in 2018-19 and from the previous record of 122 million mt in 2017-18.

Pessoa said that his estimates were slightly above official figures from national crop agency Conab, but added it was due to several methodology differences.

“In any case, the most important thing to look at is that Brazil will produce 5% more beans in this next season,” he said.

BRAZIL EXPORTS AND TRADE TENSIONS
Agroconsult projects Brazilian soybean exports of 74 million mt in 2020, up from 72 million mt in 2019, but still below the record of 84 million mt in 2018.

Looking at the global picture, and considering the marketing year of October to September, two scenarios should be considered, he said.

One scenario is that in which China gets a deal with the US that is more in line with Chinese demands, which is Pessoa’s base scenario. The alternative scenario considers US President Donald Trump getting the large increase in agriculture imports from China that he has been asking for.

“If we look at the agriculture goods exports from US to China, soybeans have been the most impacted, and the only product that could see a large increment in export flow. This alternative scenario would be more aggressive and would have to happen faster, with a trade deal signed soon rather than later,” he said.

In both scenarios, Agroconsult projects Chinese soybean imports at 86 million mt in 2019-20 (October-September), up from 83 million mt in 2018-19, but still far from the pre-ASF period, when China imported 94 million mt in both 2016-17 and 2017-18.

Considering the scenario of no major US-China trade deal on the table, Brazil will export 59 million mt to China in 2019-20, down from 60 million mt in 2018-19, while the US would export 20 million mt, up from 14 million mt in 2018-19, according to Agroconsult.

In the alternative scenario, where a major deal boosts US agriculture exports, Brazil would export 54 million mt to China in 2019-20, while the US would ship 27 million mt, the largest volume since 2016-17.

“And why I’m saying 27 million mt, and not 30 million or more? Because simply there wouldn’t be enough beans in the US, after a major crop loss this year,” Pessoa added.
Source: Platts

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