Soybean Production in Brazil and Argentina Is Stiff Competition for U.S. Farmers

February 04, 2020

Soybean Prices Swing on South America’s Outlook

For the last 30 years, production in South America has continued to expand. Brazil surpassed the U.S. as the largest soybean exporter 10 years ago and now is the top soybean producer for the first time ever.

That makes the 2020 South American growing season a potential primary soybean market mover. While some planting was delayed in Brazil and Argentina during December due to dryness, weather reports now show the Brazilian and Argentine soybean crops are generally in good condition with only some concerns for dryness in southern Brazil. This could temper U.S. soybean price enthusiasm if another record crop ultimately dampens U.S. export sales.

The USDA reports timely rain in the leading soybean-producing state of Mato Grosso, Brazil, has been contributing to the favorable rating in that country. Southern and northeastern areas were warmer and drier than desired as the crop began to emerge and grow. Meanwhile, in Argentina, recent rains provided a boost for soybeans headed into critical reproductive stages.

As a result, USDA left crop production estimates unchanged from December 2019 to its January 2020 report for both Brazil and Argentina. Brazilian soybean output is projected at 4.52 billion bushels while Argentina is forecast to produce 1.95 billion bushels for 2019-20. If realized, total South American production would be 25.7 million bushels higher than last year.

Market watchers on the ground in Brazil have similar sentiments about crop size, with early yield expectations placing soybean production in the 4.48-4.55 billion bushel range.

More Export Competition Coming

So how does that translate into meeting world demand? Uncertainty will headline market talk until the crop is made next month. More also will be known as harvested South American soybeans begin to enter the pipeline through the end of May. With such a wide speculation window, there is ample opportunity to tweak export sales expectations and impact U.S. markets.

USDA currently predicts soybean exports for the 2020 Argentine crop will be about 300 million bushels while exports from Brazil could top 2.8 billion. The forecast for Brazilian exports is 51 million bushels above last year. Brazilian officials have lowered their export predictions by 62 million bushels given recent passage of the Phase 1 deal between the U.S. and China. But analysts believe added bushels will intensify the competition for meeting demand worldwide.

Share of Chinese soybean imports supplied by Brazil has increased; U.S. share has decreased

Perhaps one silver lining for U.S. prices comes from Brazil’s domestic outlook. Soybean oil consumption should rise with its increased biodiesel blend mandate from 11 to 12 percent. Soybean meal use also will be solid, as the country grows its meat exports mainly to China.

Sell on Price Strength

What does that mean for U.S. soybean farmers? In its January 2020 report, USDA estimated U.S. soybean exports higher at 1.775 billion bushels, compared with 1.748 billion in 2018-19. Average farm prices were increased from $8.48 in the last marketing year to $9.00 in 2019-20. Solid expectations, but prices will be seasonally pressured by the South American competition.

University of Illinois economists expect prices to average a little lower, near $8.90 for the current marketing year, and drop to an average near $8.50 for 2020-21. With those cash price prospects in mind, market analysts largely recommend pricing portions of 2020 soybean production on any South American weather concerns that raise U.S. soybean prices. In fact, many locations already have fall cash prices near $9.00 that may warrant some forward sales.

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